Behrens et al v. JP Morgan Chase Bank N. A. et al

MOTION to Dismiss Memorandum of Law and Exhibits. Document

S.D.N.Y.December 15, 2017

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK -------------------------------------------------------------------------------X BRUCE BEHRENS, KATHLEEN BEHRENS, SHERRY SCHEFFERT AND DAVID SCHEFFERT, RICHARD WAKEFORD on behalf of themselves and Civil Action No. All other similarly situated, 16-CV -5508 Plaintiffs, -against- JPMORGAN CHASE BANK, N.A., U.S. BANK, N.A., CHICAGC MERCANTILE EXCHANGE, INC. MILLENIUM TRUST COMPANY a/kla MILLENIUM TRUST CO. LLC, RUSSELL WASENDORF, RUSSELL WASENDORF, JR. STEVEN BREWER a/k/a STEVEN JOHN BREWER, GARLON MAXWELL, AMBER MAXWELL, PERRY COMEAU, John Does #1-40. Defendants. -------------------------------------------------------------------------------X MEMORANDUM OF LAW IN SUPPORT OF MOTION OF DEFENDANT RUSSELL WASENDORF, JR. TO STRIKE PLAINTIFFS’ SECOND AMENDED COMLAINT; IN THE ALTERNTATIVE TO DISMISS PLAINTIFFS’ SECOND AMENDED COMLAINT FOR FAILURE TO STATE A CLAIM AND FOR IMPROPER VENUE AND IN THE ALTERNATIVE TO TRANSFER VENUE Defendant Russell Wasendorf, Jr, by and through his undersigned attorney, and, for his Memorandum in Support of His Motion to Strike the Second Amended Complaint; In the Alternative to Dismiss the Second Amended Complaint or Transfer Venue, states as follows. Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 1 of 36 i TABLE OF CONTENTS I. INTRODUCTION……………………………………………………………….. 1 II. STATEMENT OF FACTS………………………………………………………. 2 III. PLAINTFFS’ SECOND AMENDED COMPLAINT SHOULD BE STRICKEN.. 8 IV. PLAINTIFFS’ SECOND AMENDED COMLAITN FAILS TO ADEQUATELY PLEAD ANY CLAIMS AGAINST WASENDFORF, JR. ……………………….. 8 A. The 2nd AC Is A Mish-Mash of Allegations Railing Against the Concept of Commodity Futures and Options Trading, Based On A Recitation of Events Occuring Years After Plaintiffs’ Funds Were Lost In The Market…………….………………………......... 8 B. The 2nd AC Fails Miserably to Comply With Rule 9(b)……………….…. 10 V. PLAINTIFFS’ LOSSES HAVE NO CASUAL REALTIONSHIP TO THE “PONZI” SCHEME ENGINEERED BY RUSSELL WASENDORF, SR. ….16 VI. PLAINTIFFS’ CLAIMS ARE BARRED BY APPLICABLE STATUTES OF LIMITATION………………………………………..…………………………… 20 A. Claims Alleging Violations of the CEA Expired in 2010………………… 20 B. The RICO Claim Is Also Barred By The Statute of Limitations…………. 21 C. The State Law Claims Are Likewise Time-Barred……………………….. 22 VII. PLAINTIFFS’ CLAIMS ARE BARRED BY THE DOCTRINE OF RES JUDICATA…………………………………………………………………………………. 24 VIII. VENUE IN THIS COURT IS IMPROPER……………………………………….. 26 A. Citizenship of the Parties Dictates An Illinois Venue…………………….. 26 1. Dismissal Is Appropriate Due to Plaintiffs’ Utter Failure to Allege And The Non-Existence of Facts Supporting Proper Venue In This Case Against Defendant Wasendorf…………………………………... 30 2. Alternatively, Transfer to the Northern District of Illinois Is Appropriate…………………………………………………………….. 30 (a) Plaintiffs’ Customer Agreements with PFG Contain Forum Selection Clauses, Requiring Resolution of Their Claims in Chicago…………………………………………………………...... 30 (b) The Other Forum Non-Conveniens Factors Under Section 1404 Also Weigh In Favor of Transfer……………………. 32 IX. CONCLUSION…………………………………………………………………… 34 Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 2 of 36 1 I. INTRODUCTION This matter arises from the festering disappointment of the Plaintiffs Bruce Behrens, Kathleen Beherns (collectively “the Behrens”), Sherry Sheffert, David Scheffert (collectively “the Schefferts”) and Richard Wakeford “(Wakeford”), who, having decided to speculate in commodity futures and option through their trading advisors (the Maxwells), saw their entire accounts decimated by the turmoil following the Lehman Brothers bankruptcy in the fall of 2008. Blaming Peregrine Financial Group, Inc. (“PFG”) for not protecting them from experiencing these losses, the Plaintiffs instituted a series of arbitrations before the National Futures Association (“NFA”), alleging violation of Chicago Mercantile Exchange (“CME”) Rule 930, permitting the Maxwells to act as unregistered trading advisors, fraud, and a sundry assortment of other claims. The arbitration panels ruled against the Plaintiffs, dismissing their claims in 2009 after full evidentiary hearings. Seizing on the fact that the owner of PFG, Defendant Wasendorf, Sr., had been using PFG’s customer segregated funds as his piggy bank for a number of years, the Plaintiffs have, through pleading that grown in length and convoluted reasoning with each reiteration, have tried to resurrect those claims. The gist of the alleged wrongdoing by Wasendorf, Jr. are the list of supposed duties he allegedly set forth in ¶ 810 of the Second Amended Complaint (“2nd AC”), even if one assumes them to be true, played no part, whatsoever, in the losses they occurred. Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 3 of 36 2 The Plaintiffs simmering resentment at the loss of all or most of their savings burst into flames when the attorney who represented them in those arbitrations wrote to the Plaintiffs on July 31, 2012 that they may have claims based on the exposure of a Ponzi scheme perpetrated by Defendant Wasendorf Sr. that came to light because of his then recent attempted suicide. Plaintiffs filed claims in the ensuing bankruptcy even though their PFG accounts had been closed for over three years and their fraud claims had been adversely adjudicated. Plaintiffs also hoped to become part of a class action lawsuit filed on the heels of the exposure of the Ponzi scheme in July 2012. Since the only victims of the Ponzi scheme were those customers who had accounts with PFG on July 10, 2012 when it ceased operations, their bankruptcy claims were denied and they were excluded from the class because they did not have active PFG accounts as of that date. Unwilling to accept the fact that their legal remedies had been exhausted, the Plaintiffs found attorneys who cut and pasted allegations from the class action complaint, from an action filed by Commodity Futures Trading Commission, and their 2009 arbitration claims in a disjointed, scatter-gun approach to cobble a claim containing numerous inconsistences, non-sequiturs, and flights of fantasy, now including claims against the National Futures Trading Association and Plaintiffs’ former attorney, to resurrect their 2009 claims. Plaintiffs’ 2nd AC should be stricken. Plaintiffs did not seek leave of Court, nor did Plaintiffs obtain consent of Defendants to file the Second Amended Complaint. Thus, it should be stricken pursuant to Fed.R.Civ.Pro. 15(a)(2) and 12(f). Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 4 of 36 3 Plaintiffs’ claims should be dismissed for improper venue due to the forum selection clauses in their Customer Agreements with PFG, or these claims should be transferred to the Northern District of Illinois pursuant to those agreements. II. STATEMENT OF FACTS Plaintiffs filed their original Complaint on July 11, 2016. (Docket Item 1) (“the Complaint”) and filed the AC (docket Item 78) (the “AC”) on October 11, 2017 and filed the Second Amended Complaint (“2nd AC”) without leave of court or consent of the Defendants on November 30, 2017 (Docket Item 103). Of the twenty-nine Claims in the 2nd AC, eight are alleged against Wasendorf Jr.: Claim I (violation of The Commodity Exchange Act 7 U.S.C. § 1, et seq. (the “CEA”); Claim V (violation of the CEA); Claim VII (breach of fiduciary duty); Claim XII (aiding and abetting a violation of the CEA); Claim XIII (aiding and abetting breach of fiduciary duty); Claim XV (negligence); Claim XXII (unjust enrichment); XXIII (infliction of emotional distress); Claim XXIV (sic) (punitive damages); Claim XXVI (violation of the Racketeer Influenced and Corrupt Organizations Act 18 U.S.C. 1961, et seq. (“RICO”). No new claims were asserted against Wasendorf, Jr. in the Second Amended Complaint, although some new allegations against him were added. See, e.g., 2nd Am. Compl. ¶¶ 226, 755. Plaintiffs have presented no reason for their delay in asserting the additional allegations against Wasendorf, Jr. who has been prejudiced by having to expend legal fees to discuss Plaintiffs’ deficient claims against Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 5 of 36 4 him with Plaintiffs’ counsel in August, 2017, responding to the Amended Complaint in October, 2017 and now having to respond again to the 2nd AC in December, 2017.1 Plaintiffs are named parties of a putative class action for all those who held accounts prior to July 12, 2012 “who found their accounts worthless or nearly worthless” (2nd AC at p. 1) regardless of reason and further defined as: “. . .those who invested with Peregrine Financial Group through Introducing Brokers or directly through Peregrine Financial Group, Inc. from 2007 to 2008 and/or individuals who were not furnished with proof of claims in the related Class Action entitled In Re Peregrine Financial Group Litigation, 12-cv-5546 (N.D.Ill. 2012.) or those who were decertified.” 2nd AC at ¶ 7. Sherri and David Sheffert (the “Shefferts”) opened three commodities futures trading accounts with PFG in 2007 and lost their funds during “the week of October 2 through October 8, 2008. (2nd AC at ¶ 87). Bruce and Kathleen Brehrens (the “Brehens”) also opened three commodities futures trading accounts with PFG (id. at ¶ 104), while Wakeford opened two such accounts (id. at ¶ 108) that also suffered major losses. Importantly, the Plaintiffs’ PFG accounts “were terminated at Peregrine in October, 2008, and they were told by Garlon Maxwell that they had been financially wiped out around that time.” Id. at ¶ 699 (emphasis supplied). Moreover, each of the Plaintiffs were advised to initiate NFA arbitrations against PFG “Shortly after this debacle” (AC at ¶ 488). They did and “the appropriate NFA Arbitration 1 Many of Plaintiffs’ amendments appear to merely eliminate allegations upon which Wasendorf, Jr. relied to assert that Plaintiffs’ claims should be dismissed pursuant to the statute of limitations. Plaintiffs cannot avoid application of the statute of limitations by merely eliminating allegations establishing the dates upon which they knew of the bases for their claims. Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 6 of 36 5 Claim forms were filed with the NFA on or about June 30, 2009, approximately eight months after the losses were discovered” (AC at ¶ 490 (emphasis supplied)) naming PFG and Brewer Futures Group (“BFG”): • Bruce and Kathleen Behrens v. Peregrine Financial Group, Inc. and Brewer Financial Group, LLC, NFA Arb. No. 09-ARB-99; • Millennium Trust Co FBO/ K. Behrens v. Peregrine Financial Group, LLC and Brewer Financial Group, LLC, NFA Arb. No. 09-ARB-135;2 • Millennium Trust Co FBO/ B. Behrens v. Peregrine Financial Group, LLC and Brewer Financial Group, LLC, NFA Arb. No. 09-ARB-136; • David and Sherri Scheffert. Millennium Trust /David Scheffert, and Millennium Trust/Sherri Scheffert v. Peregrine Financial Group, Inc. and Brewer Financial Group, LLC, NFA Arb. Nos. 09-ARB-105, 09-ARB-142, 09-ARB-143; and • Richard Wakeford v, Peregrine Financial Group, Inc. and Brewer Financial Group, LLC, 09-ARB-100. Each of the above arbitrations resulted in the arbitration awards attached as Exhibits “A”, “B”, “C”, “D” and “E” hereto.3 On July 10, 2012, PFG filed a voluntary bankruptcy proceeding styled In re Peregrine Financial Group, Inc. in the U.S. District Court for the Northern District of Illinois Eastern Division, Case No. 12-27488 (the “PFG Bankruptcy”). Also on July 10, 2012, the Commodity Futures Trading Commission (“CFTC”) filed an enforcement action against PFG and Russell Wasendorf, Sr. on July 10, 2012, styled U.S. Commodity Futures Trading Commissions v. Peregrine Financial Group, Inc. and Russell R. Wasendorf, Sr. Case No. 12-cv-05383 (N.D. Ill. 2012). On July 13, 2010, a customer class action was also filed, ultimately styled In Re Peregrine Financial 2 Millennium Trust Co. was the conduit for depositing Plaintiffs’ IRA funds with BFG according to the AC. 3 The Court may take judicial notice of these awards pursuant to Rule 201, F. R. Evid. Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 7 of 36 6 Group Litigation, 12-cv-5546 (N.D.Ill. 2012) (the “PFG Class Action”). Importantly, The PFG Class action limited the putative class to: The Class in this action (“Class”) consists of persons, other than Defendants, their employees, affiliates and agents, who held money or other assets in PFG customer accounts as of any time during the longest period allowed by the applicable statutes of limitations, and in any event at least between January 1, 2010 and July 10, 2012 (“Class Period”). Docket Entry 1 at ¶ 24 (emphasis supplied). The subsequent amended complaints maintained this class definition. Docket Entry 18 at ¶ 77. The Consolidated Class Action Amended defined the putative class as: Plaintiffs bring this action as a class action pursuant to Federal Rule of Civil Procedure 23 on behalf of all PFG futures account holders or customers who held open commodity futures or options positions, swaps, and/or cash collateral or cash deposits for futures collateral in their PFG accounts and have not received a return of 100% of their funds from PFG, its affiliates, or the Defendants. Excluded from the Class are all Defendants, all members of the immediate families of the Defendants, all other officers, directors, and managing agents of the Defendants including all PFG affiliates and subsidiaries. Docket Entry 66 at ¶ 124 (emphasis supplied). The Second Consolidated Amended Class Action Complaint maintained this definition of the putative class. Docket Entry 169 at ¶ 318. Plaintiffs, therefore, were never part of the putative class.4 4 The final order defined the class as follows: “Settlement Class” means all persons or entities who held money, property, and/or securities pursuant to 7 U.S.C. § 6d(a)(2) at PFG as of July 10, 2012. Excluded from the Settlement Class are: (i) all 30.7 Customers; (ii) any Person named as a defendant in the Consolidated Amended Class Action Complaint (including any immediate family members of such defendant and any parent, subsidiary or affiliate of any defendant) who held money, securities, or property at PFG; (iii) any parent, subsidiary or affiliate of PFG that held money, securities, or property at PFG and that could otherwise be deemed to be a member of the Settlement Class; and (iv) any Persons that exclude themselves from Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 8 of 36 7 Paul Thomas (“Thomas”) the attorney who had represented the Plaintiffs in the NFA arbitrations (AC at ¶ 488) and is now alleged as a defendant conspirator, sent Plaintiffs a letter on July 31, 2012, informing them of the attempted suicide of Wasendorf Sr. and stating that they had a potential claim. Complaint at ¶ 305; 2nd AC at ¶ 694. On December 14, 2012, one of Plaintiffs’ instant attorneys filed a bankruptcy claims: (a) on behalf of the Schefferts’ for $350,630.64 asserting “fraud, misrepresentation and vicarious liability” as the basis for the claim (Exhibit 10 to the AC at p.1); and (b) on behalf of Bruce Behrens in the amount of $202,061.60 alleging “fraud, (sic) misrepresentation, lack of risk disclosures, vicarious liability” as the basis for the claim (id. at p. 4). The claims allowed by the bankruptcy receiver were for customers with futures trading accounts who had funds on deposit with PFG on July 10, 2012, which excluded the Plaintiffs. Plaintiffs filed their initial Complaint in this matter on July 11, 2016, four years after they were informed by Thomas they may have had a claim and three-and- a-half years after the Schefferts and Bruce Brehens filed their bankruptcy claims. At no time until the filing of the instant litigation did the Plaintiffs file any action against Wasendorf Jr. the Settlement Class by filing a request for exclusion that is accepted by the District Court. Docket Entry 440 at p.9 Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 9 of 36 8 III. PLAINTIFFS’ SECOND AMENDED COMPLAINT SHOULD BE STRICKEN Plaintiffs’ Second Amended Complaint should be stricken as it was filed without leave of court and without consent of Defendants. Fed.R.Civ.Pro. 15(a)(2); 12(f). See Index Fund, Inc. v. Haqopian, 107 F.R.D. 95-97-99 (S.D.N.Y. 1985)(imposing monetary sanctions under Rule 11 for filing an amended complaint without seeking leave of court as required by Rule 15(a)). In such circumstances, the amended pleading is generally considered a nullity and without legal effect. See Lyddy v. Bridgeport Bd. Of Educ., 2008 U.S. Dist. LEXIS 45035, 2008 WL 2397688 (D. Conn., June 10, 2008) citing 6 Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice & Procedure § 1484, at 601 (1990). IV. PLAINTIFFS’ SECOND AMENDED COMPLAINT FAILS TO ADEQUATELY PLEAD ANY CLAIMS AGAINST WASENDORF, JR. A. The 2nd AC Is a Mish-Mash of Allegations Railing Against The Concept of Commodity Futures And Options Trading, Based on a Recitation of Events Occurring Years After Plaintiffs’ Funds Were Lost In The Market With each reiteration of the claims, the Plaintiffs’ allegations become increasingly convoluted. Now there is a grand scheme involving Peregrine Financial Group, Inc. (“PFG), The Chicago Mercantile Exchange (“CME”), the futures industry self-regulating body, the National Futures Association (“NFA”), two national banks, Wasendorf, Jr., the attorney who represented the Plaintiffs in their 2009 NFA arbitrations, Paul Thomas, and Wasendorf, Sr. Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 10 of 36 9 Missing from the 2nd AC is any nexus between the allegations of various alleged illegal, reckless or negligent activity perpetrated by the various Defendants any the losses Plaintiffs incurred. Plaintiffs’ central allegation is contained in ¶ 110 of the 2nd AC in which it is alleged that Defendants Garlon and Amber Maxwell (“the Maxwells”) charged a 22% incentive fee which was based on “profits”. Id at ¶112. to trade the Plaintiffs commodity futures trading accounts. In other words, the Maxwells profited as the Plaintiffs profited. Yet, in ¶ 119 of the 2nd AC, Plaintiffs allege: The investment advisors, the Maxwells, continued to purposefully cause losses in each plaintiff’s account by selling naked puts and/or naked calls in each plaintiffs account during the volatile week of October 2 through October 8, 2008, not just using 10%, but 100% of each clients' monies which ensured a total collapse of each account. Emphasis supplied.5 For what purpose? If the Garlons only were paid as the accounts flourished, why would they purposefully cause loses in the account? For two years, the accounts made modest profits. Id. at ¶ 111. Similarly, PFG made money on commissions charged for each trade initiated and each trade eventually closed also would have no pecuniary motive to cause open option positions to deteriorate thereby causing the Plaintiffs to lose their funds and not enter more trades from which PFG would profit. These are just two of at least a score of unsustainable leaps of logic the Plaintiffs use to attempt to tie together a jumble of disparate theories, lacking any 5 The assertion that placing trades using 100% of the accounts’ assets “ensured the total collapse” is non-sequitur. Over leveraging certainly increases risk but it does not ensure the account will or will not lose money. If one is on the right side of the market, over leveraging will produce larger profits. Being wrong the market, as the Maxwells were, increases the losses. Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 11 of 36 10 factual underpinnings as required by Rule 9(b) to obscure the fact that they were “wrong the market”, filed litigation to recover their losses and lost that claim over eight years ago. In the end, the allegation that sinks the Plaintiffs’ leaking ship of a pleading is the fact that it was the Plaintiffs’ inability to provide additional margin funds that resulted in closing out the open positions in their account thereby realizing the losses for which they now seek recompense. 2nd AC at ¶ 116. B. The 2nd AC Fails Miserably to Comply With Rule 9(b) Fed.R.Civ.P. 9b requires that a party alleging fraud “must state with particularity the circumstances constituting fraud . . .” This requires that a plaintiff, among other facts, plead the time, place, and the content of misrepresentations: Under the liberalized pleading standards adopted by the modern Federal Rules of Civil Procedure, a "short and plain statement" will normally suffice to state a claim. Fed.R.Civ.P. 8(a). Whenever a plaintiff alleges fraud, however, the Federal Rules impose stricter pleading prerequisites. A complaint that raises a fraud claim, whether of the statutory or common law variety, must state "the circumstances constituting fraud ... with particularity." Fed.R.Civ.P. 9(b). To satisfy the particularity standard of Rule 9(b), a plaintiff pleading fraud must "specify the time, place and contents of any alleged false representations, and the full nature of the transaction." McKee v. Pope Ballard Shepard & Fowle, Ltd., 604 F.Supp. 927, 930 (N.D.Ill.1985) (quoting Lincoln Nat'l Bank v. Lampe, 414 F.Supp. 1270, 1279 (N.D.Ill.1976)). Derson Group, Ltd. v. Right Mgt. Consultants, Inc., 683 F.Supp. 1224, 1227 (N.D. Ill. 1988). This pleading requirement extends to antifraud statues as well. A plaintiff alleging fraud, therefore: . . . must plead the "who, what, when, and where" of the alleged fraud. Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 12 of 36 11 Uni*Quality, Inc. v. Infotronx, Inc., 974 F.2d 918, 923 (7th Cir. 1992). As discussed below, the instant Plaintiffs have utterly failed to allege the "who, what, when, and where” of the alleged fraud in the AC. For example, Plaintiffs allege: These customer accounts were destroyed by a variety of means and methods including but not limited to: (1) the use of fictitious trades to shadow trade the actual market to give the appearance to plaintiffs that they lost due to real transactions, (2) trading without the requisite margin or with margin from other investors or the plaintiffs herein whereby each customer's account acquired positions in risky out-of-the money puts and calls that eventually lost 95% of the time, (3) manipulating the market to cause losses for the customer and gains for PFG such as in the FOREX markets. 2nd AC at ¶ 18. These are ultimate conclusions, not facts. How, would the use of fictitious trades “shadowing the market” have affected the trades made in Plaintiffs accounts? When were the supposed fictitious trades entered? And, assuming some unspecified fictitious trades were entered somewhere, how did those fictitious trades that are not alleged to have occurred in Plaintiffs’ accounts cause them to lose funds. If, indeed, the Plaintiffs are alleging that fictitious trades were entered in their account then they must specify which trades that appeared in their account were fictitious. If the trades occurred elsewhere, then they must allege some fact to link those fictitious trades to the trades entered in their account. If margin from other customers were used, Plaintiff must allege at least some entries in their monthly statements that are false or at least the amount of margin from other accounts as opposed to the margin funds they deposited. The Plaintiffs do not allege any deep, out-of-the-money options that were traded in their accounts, specific facts necessary for a fraud complaint. And, if no deep, out-of-the-money options were traded in their Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 13 of 36 12 accounts, how did the trading of deep, out-of-the-money options in other people’s accounts cause them to lose money? The 2nd AC is fatally silent in that regard. As for the FOREX market manipulation, Plaintiffs do specify which FOREX currencies were manipulate, when they were manipulated and, importantly, as with the out of the money options, the Plaintiffs do not allege they traded any FOREX contracts (they did not). How then did the assumed manipulation of the FOREX market cause their commodity futures positions to lose money? There are no facts in the 2nd AC that support these conclusory assertions. The Plaintiffs cannot rely on unspecified generalities when pleading fraud. Novak, Neiman, et al. v. Kasaks, et al., 216 F.3d 300 (2nf Cir. 1999). The Plaintiffs “obligation to provide the grounds of his entitlement to relief” even under the more liberal dictates of Rule 8, F.R.C.P. “requires more than labels and conclusions.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 554, 127 S.Ct. 1955, 167 L.Ed. 2d 929 (2007). The Plaintiffs allegations fall woefully short of the mark to sustain a complaint sounding in fraud. Besides failing to provide the “who, what, when, and where” of anything regarding the suppositions permeating the 2nd AC, the Plaintiffs treat the Defendants as a cohesive mass rather than as individuals. The Plaintiffs make collective allegations throughout the 2nd AC regarding how the Defendants committed various acts without alleging with particularity what acts Wasendorf Jr. committed that were directed towards each Plaintiff. The Plaintiffs also make sweeping general statements regarding the supposed collective knowledge of the Defendants regarding the various scheme conjured by their counsel. The Plaintiffs, Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 14 of 36 13 repeatedly allege that the Defendants, collectively, “knew” certain facts and intended” certain consequences but provide no facts regarding this supposed knowledge Rule 9b requires that facts be pled regarding each Defendant’s individual involvement and knowledge. Wendt v. Handler, Thayer & Duggan, LLC, 613 F. Supp. 2d 1021 (N.D. Ill. 2009). As stated in Vicom, Inc. v. Harbridge Merchant Servs., 20 F.3d 771 (7th Cir. 1994): . . . in a case involving multiple defendants, such as the one before us, "the complaint should inform each defendant of the nature of his alleged participation in the fraud." DiVittorio, 822 F.2d at 1247; see also Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993) ("Rule 9(b) is not satisfied where the complaint vaguely attributes the alleged fraudulent statements to 'defendants.' "); Balabanos v. North Am. Inv. Group, Ltd., 708 F. Supp. 1488, 1493 (N.D. Ill. 1988) (stating that in cases involving multiple defendants "the complaint should inform each defendant of the specific fraudulent acts that constitute the basis of the action against the particular defendant"). We previously have rejected complaints that have "lumped together" multiple defendants. For instance, in Sears v. Likens, 912 F.2d 889, 893 (7th Cir. 1990), we affirmed the district court's dismissal of the plaintiff's complaint with prejudice because the complaint was "bereft of any detail concerning who was involved in each allegedly fraudulent activity." Instead, "the complaint lumped all the defendants together and [did] not specify who was involved in what activity." Id.; see also Design, Inc. v. Synthetic Diamond Technology, Inc., 674 F. Supp. 1564, 1569 (N.D. Ill. 1987) (discussing the prohibition on lumping defendants together). Id. at 778 (footnote omitted). Various additional paragraphs in the 2nd AC lack either the definiteness Fed.R.Civ.P 9(b) requires regarding conversations or lacks specific factual allegations regarding each Defendant required by the rule or lack both. There is, however, no need to engage in a lengthy dissertation of these additional deficiencies. Therefore, Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 15 of 36 14 the failure to satisfy the specificity requirements of Rule 9b requires that Claims I (violation of CEA; Claim V (violation of the CEA); Claim VII (breach of fiduciary duty); Claim XII (aiding and abetting a violation of the CEA); Claim XIII (aiding and abetting breach of fiduciary duty); Claim XXIV (sic) (punitive damages) and Claim XXVI (RICO) be dismissed. Claim XV (negligence); Claim XXII (unjust enrichment); XXIII (infliction of emotional distress) also fail to meet the requirements of Rule 8a, F.R.C.P. Bare assertions, conclusions and arguments are all that Plaintiffs pled. Worse, the Plaintiffs never tie their suspicions, conclusions together to present some cogent claim. Such mere suspicions are insufficient to state a claim. Bell Atl. Corp. v. Twombly, supra. When well-pleaded facts (which are a scarcity in the AC) “do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged--but it has not "show[n]"--"that the pleader is entitled to relief,” the party fails to state a claim. Ashcroft v. Iqbal, 129 S. Ct. 1937 at 1950, 556 U.S. 662, 173 L. Ed. 2d 868 (2009). In support of their negligence claim, Plaintiffs’ cite a letter sent by Wasendorf, Jr. three years after they lost their funds as proof of a duty because “it was intended to ease customer concerns and cause continued reliance by them on him and PFG.” 2nd AC at ¶ 808. However, the letter was sent on November 1, 2011 (id.at ¶ 807 and ¶ 808), three years after the Plaintiffs had incurred their losses and cannot possibly offer proof of relating to those losses. They also assert that Wasendorf, Jr. was aware that Plaintiffs were relying on PFG to properly handle their segregated funds. Id. at Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 16 of 36 15 ¶ 806. However, the mishandling of segregated funds by Wasendorf, Sr. play no part, whatsoever, in their losses since it was only when the Ponzi scheme collapsed in July 2012 that those customers with open accounts were left holding the bag, hence the denial of Plaintiff’s bankruptcy claim and their exclusion from the customer class action. The Plaintiffs as discussed, supra, have conclusively admitted that it was the failure to meet a margin call that caused their positions to be liquidated for a loss. Assuming, arguendo, that Wasendorf, Jr. had assumed every duty alleged in ¶ 810 of the 2nd AC and, moreover, had violated each of those duties, the breaches had no causal relationship to the liquidation of the positions in their PFG accounts. Only if Plaintiffs had funds on deposit and PFG had failed to post those funds when the margin calls were issued against the Plaintiffs’ accounts would any irregularity with the handling of segregated funds have caused the Plaintiffs’ losses. However, the margin calls were met and it was the meeting of the margin calls, rather than closing the accounts that Plaintiffs have pleaded, caused their losses. 2nd AC at ¶ 116. The unjust enrichment claim is derivative to the RICO claims, the state and federal fraud claims, and breach of fiduciary duty claims, which, as discussed, supra, must fail.6 6 Since there is no cause of action for punitive damages, which are imposed for conduct considered particularly egregious related to purposefully contract, that claim must be dismissed both because it fails to state a claim and because any claims for which punitive damages might be imposed fail to state a claim under the applicable pleading rule. Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 17 of 36 16 V. PLAINTIFFS’ LOSSES HAVE NO CASUAL RELATIONSHIP TO THE “PONZI” SCHEME ENGINEERED BY RUSSELL WASENDORF SR. Plaintiffs spend most of their 932 paragraphs in the Second Amended Complaint alleging a Ponzi scheme devised by Wasendorf, Sr. and associated RICO claims. A Ponzi scheme diverts investor money to the pockets of the perpetrators, paying off old investors who reclaim their investment with funds received from new victims of the scheme. See Saul Levmore, Rethinking Ponzi-Scheme Remedies in and out of Bankruptcy, 92 Boston U. L. Rev. 969 (2012).7 No one “took” Plaintiffs funds. Here, Plaintiffs attempt to cobble a Ponzi scheme to a situation in which funds were not misappropriated by the perpetrator of the scheme but, instead, were lost to the market or as Plaintiffs assert: “the clients’ (sic) accounts were traded further until there was no principal left at all nor a deficiency balance.” 2nd AC at ¶ 30. That, is the antitheses of a Ponzi scheme. Money lost to the market does not line the pockets of the perpetrator. Plaintiffs engage in various non-sequiturs in a vain attempt to somehow tie Wassendorf Sr.’s actions to their market losses. For example: 7 While each customer account is must meet the margin requirements for that accounts open position, PFG omnibus account is margined on net positions. For example, if customers have 1,200 long soybean contracts and other customers are short 800 contracts, then initial margin of $2,000 per contract, $4 million would be deposited with PFG; however, PFG would only need to initially post $800,000 in margin with the clearing corporation (the 400 contract position difference times $2,000) would be required since the positions offset. It is this “credit” for offsetting positions that enabled Wasendorf Sr. to purloin some of the excess customer funds. Plaintiffs however, as discussed, supra, have allege that the trading losses were the real culprit. Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 18 of 36 17 However, under no circumstances under CME Rule 930 may an investor initiate new positions when such person is on a Margin Call or in a Margin Deficiency, as is what happened in this case with respect to the Scheffert's account for example, except, the CTA's continued trading even when the Schefferts and others were in a Margin Deficiency which makes no sense if one is trying to preserve capital, but makes perfect sense if one wants to deplete and destroy a customer account pursuant to a RICO PONZI Scheme. 2nd AC at ¶ 28. As Plaintiffs admit, the CTS (i.e. Defendants Garlon and Amber Maxwell) continued to trade the Plaintiffs’ margin deficient account. How, one is constrained to ask, does destroying an account through margin deficiency trading make any sense in a Ponzi scheme context? Or, for example: . . . the goal of the RICO conspirators was to ensure that the customers' accounts were completely and intentionally destroyed so that the stolen customer monies that were previously pocketed by defendants would not be apparent to the clients. Id. at ¶ 17. How, one is constrained to ask, can the destruction of customer A’s account through margin trading possibly conceal to customer B that his or her money had previously been stolen? There is no sensibleness whatsoever to this assertion. The obvious problem with this thought process is two-fold: first, losses draw down capital making it more, rather than less likely a Ponzi scheme will collapse; and second, the “lost” monies do not go to the perpetrator of the scheme but to the person or persons taking the other side of the Plaintiffs’ position.8 8 Similarly, in attempting to justify their unsupported and wholly imaginary assertion that the trades were fictitious, the Plaintiffs allege that since no fees were claimed in the bankruptcy proceedings by brokers who introduced the customers to PFG, no actual trades could have been placed. 2nd AC at ¶ 48. Accepting, arguendo, this line of logic, what basis do Plaintiffs have for stating no such fees were owed? The answer is Schedule F of the PFG bankruptcy schedule (Exhibit 2 to the AC) does not state that no commissions are due brokers. For example, on the very first page of Exhibit 2 to the AC, the second entry shows that GIB # 829 (Guaranteed Broker Account 829) is owed $8,9689.63. The third and fourth entries show commissions payable. Page Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 19 of 36 18 While there is no disagreement that the Ponzi scheme existed at least from 2010 onward, and may have existed as far back as October 2008, the fact is there is no causal relationship between the Ponzi scheme and Plaintiffs’ losses. Adding the allegation that there were unspecified “fictitious trades” entered at some unspecified point in time, in unspecified futures or options contracts, in unspecified accounts, adds nothing to this equation. Assuming, arguendo, someone, at some time, enter some type of fictitious trade in some account, how does that relate to the real losses occasioned by the real trades in Plaintiffs’ accounts? The Plaintiffs, who had trading experience at two previous futures firms (2nd AC at ¶ 78) were commodity futures customers of PFG, a futures commission merchant (2nd AC at ¶ 111), introduced by BFG, an introducing broker. Each of the Plaintiffs claim that they were bamboozled by the Maxwells, who had discretionary authority to enter trades in their PFG accounts, which became under margined during the week of October 2, 2008 through October 8, 2008 and were sold out at a loss. (2nd AC at ¶115 and ¶116). One may argue (as the Plaintiffs did in the NFA arbitrations) that the Plaintiffs should not have been in the market to begin with or should not have been holding the positions in their account; however, what is undeniable is that the 3 of the schedule does contain an entry stating that guaranteed introducing brokerage firm (Accredit Investment Management) had no claim for commissions; however, a broker at that firm had a claim for $100,906.20 in commissions. The ten pages of Schedule F attached to the AC are replete with claims for commissions by persons employed with the introducing and guaranteed introducing brokers. Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 20 of 36 19 Plaintiffs were not a victim of a Ponzi scheme.9 As happens in Ponzi schemes, those damaged are the customers left holding the proverbial bag when the scheme bursts as it did here with Wasendorf, Sr.’s July 10, 2012 suicide attempt. The Plaintiffs funds were lost a full three years and ten months prior to the demise of the Ponzi scheme which is why they were not included as members of the PFG Class Action and, having no open account at that time, had their bankruptcy claims denied.10 9 NFA records show that PFG was a non-clearing FCM that maintained an omnibus account at clearing FCM (who executed the trades executed the trades, held the positions and were responsible for satisfying the margin imposed by the various commodity exchanges. Because futures are margined on a net basis in such omnibus accounts (long and short positions offset each other), PFG only needed to provide margin funds to the executing FCM from the customer segregated for the net balance in a commodity futures or options contract. For example, if the margin requirement for a soybean futures contract was $2,000 and PFG’s customers were long a total of 1,000 soybean contracts for a specific contract month and short 800 of those same futures contracts, the customers would need to have a total of $3.6 million deposited in their various PFG segregated funds accounts; however, PFG would only be required to transfer $400,000 ($2,000 times 200 contracts) of segregated funds to the exchange’s clearing firm, leaving $3.2 million in the customers’ segregated funds accounts for Wasendorf Sr. to prey upon. Wasendorf, Sr. proved adroit enough to maintain sufficient funds in the customer segregated bank accounts to meet customer margin requirements (such as those for Plaintiffs’ accounts) and to fund customer withdrawals while exploiting the weaknesses in the NFA oversight system for non-clearing FCMs. The Plaintiffs clearly do not understand that what is posted with the exchange clearing firm differs markedly from what is required to be deposited by customers. 10 The Commodity Futures Trading Commission (“CFTC”) filed an enforcement action styled U.S. Commodity Futures Trading Commissions v. Peregrine Financial Group, Inc. and Russell R. Wasendorf, Sr., in the Northern District of Illinois, Easter District, Case No. 12-cv-05383 (a copy of which is attached as Exhibit “G” hereto) that alleges in pertinent part that: Since at least February 2010, PFG and Wasendorf have failed to maintain adequate customer funds in segregated accounts and have misappropriated those customer funds for purposes other than intended by its customers. Exhibit G at ¶ 19 (emphasis supplied). The claims allowed by the bankruptcy receiver in PFG bankruptcy were for customers with futures trading accounts who had funds on deposit with PFG on July 10, 2012. Similarly, as discussed supra, the final order in the PFG Class Action provided for monetary relief to customers who had money or securities on deposit with PFG as of July 10, 2012. Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 21 of 36 20 Assuming, arguendo, that the Ponzi scheme was in full operation in October 2009, there still is no causal relationship between that scheme and the fact that the Plaintiffs lost their investments. The only way the alleged Ponzi scheme could have contributed to Plaintiffs’ losses is if, as result of the scheme, PFG was unable to post the funds necessary to margin Plaintiffs’ futures position and, as a result, the positions, which would have been profitable, were sold out at a loss. That did not occur. The Plaintiffs margined their position until they ran out of funds. Then the positions were liquidated, not because the alleged Ponzi scheme deprived them of the funds in their accounts but because they lacked additional funds to meet the margin calls. While the Plaintiffs may have felt betrayed and believed that something was rotten (not in Demark but in Chicago), the Ponzi scheme has no causal relationship to the losses they suffered in their commodity futures trading accounts. See Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 125 S.Ct. 1627, 161 L.Ed. 2d 577 (2005) (Complaint dismissed because the plaintiff failed to allege a causal connection between the alleged fraudulent activity and a causal connection to the alleged loss); Sallustro v. Cannavest Corp., 93 F. Supp. 3d 265 (S.D.N.Y. 2015). IV. PLAINTIFFS’ CLAIMS ARE BARRED BY APPLICABLE STATUTES OF LIMITATION A. Claims Alleging Violations of the CEA Expired in 2010 Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 22 of 36 21 Plaintiffs have asserted four against Wasendorf Jr. under the CEA: Claims I, V, VII and XII. Whatever claims Plaintiffs’ may have had under the CEA, began to run on October 9, 2008. Since the Plaintiffs believed that they were making “conservative investments” (2nd AC at ¶ 2), they were immediately on notice that something was terribly amiss since they had loss everything in a matter of a few days. As they have admitted, Plaintiffs acted and filed NFA arbitrations against PFG and BFG by June 30, 2009. As discussed in more detail below, those claims encompassed the supposed CME rule violations alleged in the 2nd AC as well as the Maxwell’s unregistered status and the trading in the accounts. Putting aside the fact that these claims are barred by the doctrine res judicata, clearly the two-year statute of limitations on claims for violation of the CEA (7 U.S.C. § 25(c)) ran over six years ago. Even assuming, arguendo, that there was a causal connection of some sort between Wasendorf Sr.’s Ponzi scheme and the Plaintiffs losses, by their own admission, Plaintiffs were placed on notice of that scheme by July 31, 2012 yet they did not file this action until July 11, 2016. B. The RICO Claim Is Also Barred By the Statute of Limitations Plaintiffs allege a RICO violation against Wasendorf Jr. in Claim XXVI based on Wasendorf, Sr.’s Ponzi scheme. RICO Claimants have a four-year limitations period, Agency Holding Corporation v. Malley-Duff & Associates, Inc., 483 U.S. 143, 107 S.Ct. 2759, 97 L.Ed.2d 121 (1987), that begins to run when the injury is sustained regardless of when the scheme is discovered. Rotella v. Wood, 528 U.S. 549, 120 S.Ct. 1075, 145 L.Ed.2d 1047 (2000). Claimants have admitted that they were aware as of Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 23 of 36 22 October 9, 2008 of their injury. They suffered no subsequent injury. Therefore, the statute of limitations on the RICO claim ran on October 9, 2012. C. The State Law Claims Are Likewise Time-Barred Plaintiffs allege claims various pendant state law claims against Wasendorf Jr.: Claim VII (breach of fiduciary duty); Claim XIII (aiding and abetting breach of fiduciary duty); Claim XV (negligence); Claim XXII (unjust enrichment); XXIII (infliction of emotional distress); Claim XXIV (sic) (punitive damages). Plaintiffs do not allege whether Illinois or Iowa state law applies. However, regardless of the jurisdiction, the claims are time-barred. Assuming, arguendo, that margin sellout qualifies as the extreme and outrageous behavior necessary to establish a claim for intentional infliction of emotional distress required by McGrath v. Fahey, 126 Ill. 2d 78, 90 (1988) and by Mills v. Guthrie County Rural Electric Coop. Ass’n, 454 N.W.2d 846, 850 (Iowa 1990), the claims are time-barred. Whatever trauma endured by the Plaintiffs occurred upon the loss of their funds in October 2008. In both Illinois and Iowa whether the infliction of emotional distress is a claim sounding in negligence or born of willfulness the statutes of limitation in Illinois is two years. 735 ILCS 5/13-202; Koelle v. Zwiren, 284 Ill. App. 3d 778, 786, 672 N.E.2d 868, 873 (1996); Iowa Code section 614.1(2), Schlichte v. Schlichte, 828 N.W.2d 632 (Iowa app. 2013). Similarly, if learning of Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 24 of 36 23 Wasendorf Sr.’s Ponzi scheme in July of 2012 somehow rose to the extreme level of behavior necessary to prove such a claim, the statutes still have run.11 Illinois imposes a five-year statute of limitations for both fraud (735 ILCS 5/13- 205) and breach of fiduciary duty. Clark v. Robert W. Baird Co., 142 F. Supp. 2d 1065 (N.D. Ill. 2001). Iowa also imposes a five-year statute of limitations on fraud (see Iowa Code §614.1, subsections (4) and (5)) other torts involving economic (rather than personal) injury are also subject to the five-year statute of limitations. See, e.g., Harvey v. Leonard, 268 N.W.2d 504, 515 (Iowa 1978) (claim for breach of fiduciary duty is subject to five-year statute of limitations). As discussed previously, the only claims that have any nexus to the Plaintiffs’ losses are those involving the margin trading, violation of the CME’s margin rules and the Maxwells’ unregistered status. All of which the Claimants knew when they filed their 2009 NFA arbitrations. Therefore, the Claim VII for breach of fiduciary duty and Claim XIII for aiding and abetting a breach of fiduciary duty are both time-barred. And, since neither jurisdiction has a cause of action for punitive damages but rather permit such damages to be assessed for intentional torts, that Claim XXIV must likewise be dismissed. 11 Plaintiffs are citizens of Iowa. Therefore, to sustain a claim for intentional infliction of emotional distress, for conduct to be "outrageous," it must be "so extreme in degree as to go beyond all possible bounds of decency, and to be regarded as atrocious, and utterly intolerable in a civilized community...." Northrup v. Farmland Indus., Inc., 372 N.W.2d 193, 198 (Iowa App. 1985). Selling out accounts based on a margin call would seem to fall very wide of this demanding requirement as a matter of law. Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 25 of 36 24 Finally, the claim for unjust enrichment is also time-barred. Illinois imposes a five-year limitations period. 735 Ill. Comp. Stat. 5/13-205 (2010); Frederickson v. Blumenthal, 271 Ill. App. 3d 738, 742 (1995)). Iowa law imposes a five-year statute of limitations on claims based on unwritten contracts, injuries to property, fraud and other actions not otherwise specified. See Iowa Code § 614.1, subsections (4) and (5). Since October of 2008 was the last time Plaintiffs had funds in their accounts, that must have been the last day anyone could have been enriched at their expense. Therefore, Claim XXII must also be dismissed. VII. PLAINTIFFS’ CLAIMS ARE BARRED BY THE DOCTRINE OF RES JUDICATA Res judicata "serves to bar certain claims in federal court based on the binding effect of past determinations in arbitral proceedings." Pike v. Freeman, 266 F.3d 78, 90 (2d Cir. 2001). To demonstrate a claim is precluded by res judicata, a party must show that: (1) the previous action involved an adjudication on the merits; (2) the previous action involved the same parties or those in privity with them; and (3) the claims asserted in the subsequent action were, or could have been, raised in the prior action." Id. at 91. Moreover, res judicata bars all claims ”that were or could have been raised in a prior proceeding in which the same parties or their privies were involved.” In re PCH Associates, 949 F.2d 585, 594 (2nd Cir. 1991). The issues decided by the arbitrations in Brehens’ Arbitrations (09-ARB-99, 09-ARB-135 and 09-ARB 136) entered on June 2, 2011 and the Schefferts’ Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 26 of 36 25 Arbitrations (09-ARB-105, 09-ARB-142 and 09-ARB-143) entered on December 14, 2011 were: The following issues were presented to and decided by the undersigned Arbitrators: Claimants allege that the Respondents were negligent and failed to supervise with respect to the activities of Garland Maxwell's trading of the Claimants' account. Claimants also allege violations of CFTC Regulations 33.10 (Fraud), 166.2 (Authorization to trade), 166.3 (Failure to Supervise), NFA Compliance Rules 2-4 (Just and Equitable Principles of Trade) and 2-9 (Failure to Supervise), NFA Bylaw 1101 (Prohibition Against Dealing with Non-NFA Members), NFA Articles of Incorporation (Prohibition Against Dealing with Non-NFA Members), Commodity Exchange Act Section 6(m) (Aiding and Abetting), Code of Federal Regulation Section 4.14 (Aiding and Abetting) and Claimants' request for interest, costs, attorney's fees and other expenses incurred as part of the arbitration proceeding. The Panel also considered Respondents' request for attorney's fees, costs and other expenses incurred as part of the arbitration proceeding. See Exhibits “A”, “B”, “C”, and “D” hereto. The award in the Wakeford Arbitration (09-ARB-100) entered on May 18, 2011 stated that the issues decided were: The following issues were presented to and decided by the undersigned Arbitrators: breach of fiduciary duty, negligence, failure to disclose risks, violations of CFTC Regulations 33.10 (Fraud), 166.2 (Authorization to trade), 166.3 (Failure to Supervise), NFA Compliance Rules 2-4 (Just and Equitable Principles of Trade) and 2-9 (Failure to Supervise), NFA Bylaw 1101 (Prohibition Against dealing with non- NFA members), Commodity Exchange Act Section 6m (Aiding and Abetting) and Code of Federal Regulation Section 4.14 (Aiding and Abetting) and Claimants' request for attorney's fees, interest and costs. See Exhibit “E” hereto. Neither the Brehens, the Shefferts nor Wakefield sought to vacate these awards under any federal or state statutes. Clearly, all the claims against Wasendorf Jr. involving the margin calls, the Maxwells and all the claims arising from the activity in October 2008 were already decided adversely. The fact Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 27 of 36 26 that Wasendorf Sr. was found to have defrauded others does not resurrect those claims. The fact that the Plaintiffs adjudicated their claims in arbitration does not diminish the application of res judicata. As stated in Lobaito v. Chase Bank, 2012 U.S. Dist. Lexis 107344, S.D.N.Y. (July 31, 2012) aff’d 529 Fed. Appx. 100 (2nd Cir. 2013): “[T]he principle of res judicata applies equally when the prior adjudication is an arbitration, to which a plaintiff voluntarily submitted similar claims.’ Id. (citing Jordan, 2004 U.S. Dist. LEXIS 15151, 2004 WL 1752822, at *3-4); see also Pike v. Freeman, 266 F.3d 78, 90 (2d Cir. 2001)("It is well settled that [the] doctrine [of res judicata] serves to bar certain claims in federal court based on the binding effect of past determinations in arbitral proceedings.") (citations omitted). Id. at *8. As an officer of PFG when Plaintiffs initiated their NFA arbitrations, Wasendorf Jr. was in privy with PFG. Plaintiffs are, therefore, precluded from bringing these same claims in this action.12 Burberry Ltd. v. Horowitz, 534 Fed. Appx. 41 (2nd. Cir. 2013). VIII. VENUE IN THIS COURT IS IMPROPER A. Citizenship of The Parties Dictates An Illinois Venue Bruce and Kathleen Behrens reside in Oelwein, Iowa. 2nd AC. ¶ 103. The Behrens own and operate a business which is also located in Oelwein, Iowa. In September of 2007, Bruce and Kathleen Behrens opened three accounts with Peregrine Financial Group, Inc. (“PFG”), a joint account, an IRA account for Kathleen and an IRA account for Bruce. Garlon Maxwell 12 Movant was PFG’s COO in 2005 (Ex. 8 to the Complaint at p.14) and was president of PFG at the time of the arbitrations. Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 28 of 36 27 (“Maxwell”) was designated as the individual that had power of attorney to trade the accounts. Id., ¶ 104-106. Sherri and David Scheffert reside in Oelwein, Iowa. The Schefferts own and operate a business which is also located in Oelwein, Iowa. In late August of 2007, David Scheffert opened an IRA trading account, Sherri Scheffert opened an IRA account, and David and Sherri Scheffert opened a joint trading account with PFG. See 2nd AC. ¶ 86-87. Richard Wakeford resides in Oelwein, Iowa. In late August of 2007, Richard Wakeford opened an IRA trading account and an individual account with PFG. 2nd AC ¶ 108, 110. JPMorgan Chase Bank, N.A. is a nationally chartered bank that is organized under the laws of Delaware with its principal place of business in New York, New York, but has a large presence in Chicago, Illinois. 2nd AC. ¶ 121. Although Plaintiffs attempt to tie JP Morgan Chase’s bad deeds concerning FX trading to Plaintiffs, none of the Plaintiffs ever traded FX contracts at PFG. US Bank, N.A. is a nationally chartered bank organized under the laws of Delaware with its principal place of business in Minneapolis, Minnesota. 2nd AC, ¶ 114. PFG’s banking relationship was with US Bank in Cedar Falls, Iowa. The Chicago Mercantile Exchange Inc. (the "CME") is a Delaware corporation with its principal place of business in Chicago, Illinois. The trades that give rise to Plaintiffs’ loss occurred in Chicago, Illinois on the CME. 2nd AC ¶ 9 (“The trading at issue occurred over the Chicago Mercantile Exchange . . .”). Millennium Trust is an Illinois Trust Company with its principal place of business in Oak Brook, Illinois. 2nd AC, ¶ 174. Millennium Trust is a provider of specialized custody solutions for alternative assets, investment accounts and retirement funds. Millennium Trust performs the Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 29 of 36 28 duties of a directed custodian and provided that service for the Behrens, Schefferts, and Wakeford. Id. at ¶ 150, 151. Russell Wasendorf was the owner and Chief Executive Officer of PFG during the time Claimants’ accounts were opened at PFG. Mr. Wasendorf was a resident of Cedar Falls, Iowa and is currently incarnated in the federal prison system in Terra Haute, Indiana. Russell Wasendorf, Jr. was the President and Chief Operating Officer of PFG during the time Plaintiffs’ accounts were opened at PFG. Mr. Wasendorf, Jr., currently resides in Florida. During the time Plaintiffs’ accounts were opened at PFG, Mr. Wasendorf, Jr. was a resident of Cedar Falls, Iowa. 2nd AC, ¶ 207. Perry Comeau is a resident of Oelwein, Iowa and has resided there for the last 14 years. Before living in Oelwein, Iowa, Mr. Comeau was a long time resident of Topeka, Kansas. 2nd AC. at ¶ 103, 196-206. Steve Brewer resides in Illinois and was the owner of the introducing broker, Brewer Futures Group, LLC, which was involved in introducing Plaintiffs’ accounts to PFG. 2nd AC ¶179. Garlon and Amber Maxwell are residents of Utah and were the trading agents for the Plaintiffs’ account at PFG. 2nd AC. ¶ 194. The National Futures Association is a not-for-profit corporation incorporated in the State of Delaware that serves as the only registered futures association established pursuant to 7 U.S.C. § 21. 2nd AC, ¶ 224. Defendant Paul William Thomas resides in the State of California and represented Plaintiffs in their NFA arbitrations in Iowa and Chicago. 2nd AC, ¶ 220-222. Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 30 of 36 29 1. Dismissal Is Appropriate Due to Plaintiffs’ Utter Failure to Allege And The Non-Existence Of Facts Supporting Proper Venue In This Case Against Defendant Wasendorf If venue is improper in the district court where the action was filed, as here, the Court may, within its discretion under 28 USC § 1406(a), dismiss the action or transfer the action to any district in which it can be brought to promote the interest of justice. Minnette v. Time Warner, 997 F. 2d 1023 (2d Cir. 1993). As with allegations respecting jurisdiction, the burden is on plaintiffs properly to plead, and on challenge to demonstrate, that venue in this District is proper. Garg v. Winterthur, 2007 WL 136263 (S.D.N.Y. 2007); Cartier v. Micha, 2007 WL 1187188 (S.D.N.Y. 2007). Plaintiffs have not done this, and cannot do so, even upon additional submissions. Where venue is improper, dismissal is appropriate. See Atlantic Marine Construction Co., Inc. v. U.S. District Court for the W. District of Texas, 134 S.Ct. 568, 575 (2013). The applicable statute, 28 U.S.C. § 1391(b) provides: A civil action wherein jurisdiction is not founded solely on diversity of citizenship may, except as otherwise provided by law, be brought only in (1) a judicial district where any defendant resides, if all defendants reside in the same State, (2) a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of property that is the subject of the action is situated, or (3) a judicial district in which any defendant may be found, if there is no district in which the action may otherwise be brought. The 2nd AC is void of any allegation of venue, and is insufficient as a matter of law. Regardless, the standards of the statute are not met here. All defendants do not reside in the same state and only one (JP Morgan) "resides" in New York. Id. passim. A substantial part of the events giving rise to the claim did not occur in New York, in fact, no part of the events giving rise to the claim occurred in New York. Id. Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 31 of 36 30 There is another district in which the action may be brought - the Northern District of Illinois - where Plaintiffs have previously sought relief, where other actions concerning the same circumstances have been decided, and where all defendants are subject to the jurisdiction of the Court. Ultimately, venue is not based on a plaintiff’s convenience, or that of its lawyers. As the Court said in Rappoport v. Steven Spielberg, Inc., 16 F.Supp.2d 481, 494 (D.N.J. 1998), “The only nexus to this District appears to be that Rappoport currently resides here and apparently made telephone calls . . . from here. . . . Based on the foregoing, venue is improper in this District pursuant to § 1391(b).” Here, too, nothing about this case provides a legitimate basis for venue in the Southern District of New York, notwithstanding the address of Plaintiffs’ counsel. 2. Alternatively, Transfer to the Northern District of Illinois is Appropriate (a) Plaintiffs' Customer Agreements with PFG Contain Forum Selection Clauses, Requiring Resolution of Their Claims in Chicago. The parties contracted for the resolution of all disputes related to Plaintiffs’ PFG accounts in Chicago, Illinois. See Plaintiff Wakeford’s Customer Agreement with PFG, attached hereto as Exhibit F. It appears as though Plaintiffs allege Defendant Wasendorf, Jr. acted in concert with PFG. 2nd AC ¶ 196-206 and passim. To the extent Plaintiffs allege Defendant Wasendorf, Jr. was in privity with or an agent of PFG, then Defendant Wasendorf, Jr. is an intended third-party beneficiary of the Customer Agreement and/or allegedly so closely related to PFG that he is entitled to enforce the forum selection provisions in the Customer Account Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 32 of 36 31 Agreement between PFG and the Plaintiffs. See ComJet Aviation Mgt. v Aviation Invs. Holdings, 303 AD2d 272, 758 NYS2d 607 (1st Dept. 2003); Freeford Ltd. v. Pendleton, 857 N.Y.S.2d 62 (1st Dept. 2008). The Customer Account Agreements provide in Paragraph 40, as follows: “Customer agrees that all actions, disputes, claims or proceedings, including, but not limited to, any arbitrations proceeding, including NFA arbitrations, arising directly or indirectly in connection with, out of, or related to or from this Agreement, any other agreement between the Customer and PFG or any orders entered or transactions effected for Customer’s account, where or not initiated by PFG, shall be adjudicated only in courts or other dispute resolution forums whose situs is within the City of Chicago, State of Illinois.” (Page 13, Paragraph 40 of the Customer Agreement), Ex. F hereto. From the allegations in the Second Amended Complaint, it is clear Plaintiffs’ claims fall within the boundaries of this forum selection clause. Paragraph 40 of each Plaintiffs’ Customer Agreement goes on to say: Customer waives any claim Customer may have that (a) Customer is not personally subject to the jurisdiction of any State or Federal Court or arbitration proceeding located within the State of Illinois, (b) Customer is immune from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to Customer or Customer’s property, (c) any such suit, action or proceeding is brought in an inconvenient forum, (d) the venue of any such suit, action or proceeding is improper, or (e) this consent or this Agreement may not be enforced in or by such court or arbitration proceeding. Customer acknowledges that as a condition precedent to Customer instigating any action, dispute, claim or proceeding, including but not limited to any arbitration proceeding, including NFA arbitrations, Customer shall pay to PFG all deficit balances. Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 33 of 36 32 Emphasis supplied. Furthermore, the Customer Account Agreements clearly provide that the governing law and jurisdiction is the State of Illinois. (See Page 12, Paragraph 30 of the Customer Agreement). Paragraph 30 of the Customer Agreement states that: This Agreement, and the parties’ rights and obligations hereto, shall be governed by, construed and enforced in all respects by the laws of the State of Illinois. Emphasis supplied. Therefore, the claims asserted by the Plaintiffs fall within the purview of the above forum selection clause. A forum selection clause must be mandatory to be enforced. John Boutari & Son, Wines & Spirits, S.A. v. Attiki Importers & Distribs, Inc., 22F.3d 51, 52-543 (2d Cir. 1994). A clause is “mandatory” if it “incorporates obligatory venue language.” Philips v. Audio Active, Ltd., 494 F.3d 378, 386 (2nd Cir. 2007) (citations omitted). Here, the forum selection clauses are mandatory, employing the words “shall” and “only”, as do the choice of law provision specifying Illinois law. Dunne v. Libbra, 330 F.3d 1062, 1064 (8th Cir. 2003). (b) The Other Forum Non-Conveniens Factors Under Section 1404 Also Weigh In Favor of Transfer Section 1404 specifically states: (a) For the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought . . . Courts have interpreted these factors to consider for transfer of a matter due to forum non-conveniens, in addition to the existence of a forum selection clauses, as: Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 34 of 36 33 . . . (1) the convenience of the parties, (2) the convenience of the witnesses--including the willingness of witnesses to appear, the ability to subpoena witnesses, and the adequacy of deposition testimony, (3) the accessibility to records and documents, (4) the location where the conduct complained of occurred, and (5) the applicability of each forum state's substantive law. . . Under the category titled "Interest of Justice" the court also considered (1) judicial economy, (2) the plaintiff's choice of forum, (3) the comparative costs to the parties of litigating in each forum, (4) each party's ability to enforce a judgment, (5) obstacles to a fair trial, (6) conflict of law issues, and (7) the advantages of having a local court determine questions of local law. . . These considerations parallel the factors that courts typically analyze under section 1404(a). Terra Int’l v. Mississippi Chem. Corp., 119 F.3d 688, 692 (8th Cir. 1997) (internal citations omitted). In this case, all parties have a nexus to Chicago. 2nd AC, passim. Even the location of Plaintiffs themselves would seemingly make it more convenient to litigate in Chicago (Iowa is closure to Chicago than to New York). While it might be more convenient for the Plaintiffs’ counsel to have the case retained in this Court, the Supreme Court’s decision in Atlantic Marine, 134 S.Ct. at 575 places a heavy burden on any argument that inconvenience trumps a forum selection clause. Further, the Eighth Circuit Court has articulated a high burden for avoiding a forum selection clause, a burden Plaintiffs have not and cannot overcome: Following Bremen, we have held that mere inconvenience to a party is an insufficient basis to defeat an otherwise enforceable forum selection clause. Instead, a party seeking to avoid his promise must demonstrate that proceeding in the contractual forum will be so gravely difficult and inconvenient that he will for all practical purposes be deprived of his day in court. Servewell Plumbing, LLC v. Federal Ins. Co., 439 F.3d 786, 790 (8th Cir. 2006) (internal citations and quotations omitted). Plaintiffs cannot demonstrate that Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 35 of 36 34 proceeding in the Northern District of Illinois will deprive them of their day in court; and therefore, they should be required to litigate their claims in Chicago. VII. CONCLUSION The Plaintiffs and their attorneys have recklessly filed a claim with the intent to resurrect, not merely time-barred claims but claims that have been previously adjudicate and have done so in mind-numbing fashion. The Second Amended Complaint should therefore be dismissed, with prejudice. Dated: December 14, 2017 Respectfully submitted, GRIEISING LAW, LLC s/ Julie Negovan JULIE NEGOVAN, ESQUIRE 195 Montague Street, 14th Floor Brooklyn, NY 11201 (215) 431-9295 jnegovan@griesinglaw.com Attorneys for Defendant Russell Wasendorf, Jr. Case 1:16-cv-05508-VSB Document 124 Filed 12/15/17 Page 36 of 36