Griswold v. EF Hutton & Co., Inc., 85C4948.

• Decision Date: 25 November 1985
• Docket Number: No. 85C4948.,85C4948.
• Citation: 622 F. Supp. 1397
• Court: U.S. District Court — Northern District of Illinois
• Parties: J.L. GRISWOLD and Patricia Griswold, Plaintiffs, v. E.F. HUTTON & CO., INC., Arthur Lassila and Robert Stieren, Defendants.

622 F. Supp. 1397

J.L. GRISWOLD and Patricia Griswold, Plaintiffs, v. E.F. HUTTON & CO., INC., Arthur Lassila and Robert Stieren, Defendants.

No. 85C4948.

United States District Court, N.D. Illinois, E.D.

November 25, 1985.

COPYRIGHT MATERIAL OMITTED

Joel J. Bellows, Nicholas P. Iavarone, Bellows & Bellows, Chicago, Ill., for plaintiffs.

John J. Enright, Robert P. Bramnik, Andrew B. David, Marjorie E. McCollom, Arvey, Hodes, Costello & Burman, Chicago, Ill., for defendants E.F. Hutton and Arthur Lassila.

MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

J.L. Griswold and his wife Patricia ("Griswolds") sue E.F. Hutton & Co., Inc. ("Hutton") and two Hutton account executives, Arthur Lassila ("Lassila") and Robert Stieren ("Stieren"), for civil damages based on the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968, the Commodity Exchange Act ("CEA"), 7 U.S.C. §§ 1-26 and violations of fiduciary duty under state law. Hutton and Lassila have moved under Fed.R.Civ.P. ("Rule") 12(b)(6) to dismiss the Amended Complaint (the "Complaint") in its entirety as to them.¹ For the reasons stated in this memorandum opinion and order, their motion is denied.

Facts²

In November 1983 Lassila, a former classmate of J.L. Griswold, learned Griswolds had sold their business and had a large sum of money available for investment (¶ 14).³ During November and December 1983 Lassila had several conversations with J.L. Griswold in which he "extolled" the advantages of Hutton's Managed Commodity Account Program ("MCAP") as an investment vehicle (¶ 15). Griswolds were convinced by Lassila's presentation of MCAP and decided to invest in it. On December 7, 1983 Griswolds opened several accounts with Hutton, depositing some $775,000 for use in trading commodities (¶ 25). On January 26, 1984 Griswolds invested a further $250,000 (¶ 26).

Lassila described MCAP to Griswolds as a program for trading commodity futures by drawing on the abilities of several Commodity Trading Advisers ("Advisers") at once. MCAP provided Hutton's customers with a number of Advisers, each of whom would separately trade an account established in the customer's name by Hutton. Thus MCAP was supposed to be a means of diversifying the risk associated with commodities trading (¶ 15).

Lassila ultimately introduced J.L. Griswold to six Advisers. Five of those — Cresta Commodity Management, Inc. ("Cresta"), Orion, Inc. ("Orion"), A.O. Management Corp. ("A.O."), Institute for Computer Studies of Commodities ("ICSC") and Colorado Commodities Management Corp. ("Colorado") — were "outside" Advisers participating in Hutton's program. Stieren, a Springfield, Illinois Hutton account executive, was the sixth. All were recommended to Griswolds by Lassila, who promised he would oversee the activities of the Advisers on a daily basis to insure adherence to a trading plan and to control risks (¶ 22-23, 25).

Griswolds signed a client agreement (the "Client Agreement") with Hutton that included authorization for Stieren to trade on their behalf (Ex. A-1). Griswolds also signed individual authorization agreements with Cresta,⁴ Orion, A.O., ICSC and Colorado, each authorizing the individual Adviser to trade a designated dollar amount on account with Hutton (Exs. A-2 to A-7).

On January 28, 1984 Lassila sent a hand-written note (Ex. E) to J.L. Griswold:

Dear Jim:

I wish to acknowledge the managed commodity account established in our Springfield office being managed by Bob Stieren. The account was funded in December, 1983 with $150,000 and an additional $250,000 on January 26, 1984. My understanding through your discussion with Bob is that the $150,000 is a general trading account with a maximum approximate stop-loss of $75,000. Further the $250,000 sized account is for the special situation which Bob perceives to be unfolding in the relatively near term. The stop-loss on this part of the account is an additional $75,000.

The nature of Stieren's trading since the account's inception has involved large positions and heavy trading resulting in heavy commission generation approximating 50 to 100% of original account equity per month. While the nature of markets could change from trading markets to trending markets and therefore reducing transaction activity, it can not be anticipated when this might occur. It is acknowledged that commissions in this account are running well above the usual commissions in managed commodity accounts. In view of this I will make an effort to obtain a large discount for this account retroactive to early December.

Cordially Arthur Lassila Acknowledgement of Letter and Stop-loss /s/ J. Griswold Jim Griswold Jan. 28, 1984

J.L. Griswold signed the acknowledgment.

On February 21, 1984 J.L. Griswold met Lassila at Hutton's Peoria, Illinois office to obtain the discount mentioned in Lassila's January 28 letter. Lassila tendered Hutton's check (Ex. G) for $59,134 made out to "James Griswold & Patricia R. Griswold JTWROS."⁵ Lassila said that was the amount due Griswolds after the commissions were discounted, and he also tendered a one-page single-spaced typed document (the "Release," Ex. F), which he said Hutton needed signed to show the discount on Stieren's commissions was final. In relevant part the Release reads:

RECEIPT AND GENERAL RELEASE AND ASSIGNMENT OF CLAIM

1. For and in consideration of the sum of Fifty Nine Thousand One Hundred Thirty Four dollars ($59,134), receipt of which is hereby acknowledged, ______ and ______ ("GRISWOLDS") hereby release, discharge and acquit E.F. Hutton & Compnay sic Inc. ("HUTTON") and its representatives, including, without limitation, its agents, employees, servants, directors, officers, attorneys, assigns and successors, and each of them, with the exception of Mr. Robert D. Stieren of and from any and all claims, demands, sums of money, actions, rights, causes of action, obligations and liabilities of any kind or nature whatsoever which the GRISWOLDS may have had or claim to have had, or now have or claim to have, hereafter may have or assert to have, including, without limitation, those which arise out of or are in any manner whatsoever, directly or indirectly, connected with or related to a certain account number F73-99919 standing in the GRISWOLDS name at Hutton's branch office in Springfield, Illinois and any act, omission, transaction, dealing conduct or negotiation of any kind whatsoever between the GRISWOLDS and Hutton or between anyone acting or purporting to act on their respective behalves.

* * * * * *

3. The GRISWOLDS warrant, represent and agree that in executing this release, and in accepting the consideration described herein, they do so with full knowledge of any and all rights which they may have with respect to the controversies herein compromised and that they have received independent legal advice from their attorney with regard to the facts relating to said controversies and with respect to the rights and asserted rights arising out of said facts. In this regard, the GRISWOLDS understand, acknowledge and agree that such payment is not an admission of liability on the part of Hutton, but to the contrary, represents a compromise of claims asserted against Hutton, which are expressly contested, disputed and denied.

* * * * * *

5. This release shall inure to the benefit of Hutton and shall be binding upon the GRISWOLDS, their assigns, representatives and successors. The GRISWOLDS acknowledge that they have read this receipt, general release and assignment of claim, and that they fully know, understand and appreciate its contents and that they execute the same and make the settlement provided for herein voluntarily and of their own free will. In witness whereof, the undersigned have executed this receipt and general release as of the date hereinafter appearing.

When J.L. Griswold signed the Release he believed, based on Lassila's statements, he was agreeing only not to seek further discounts on Stieren's trades (¶ 34).

Stieren's last trade on Griswold's account was on February 15, 1984. During the two-month-plus trading period, Stieren generated $196,893 in total commissions on the $400,000 entrusted to him (¶ 29 and Ex. B).

Although Stieren's account had been funded in full for $400,000, the accounts of the other Advisers were not. Lassila told Griswolds it was Hutton's practice to fund such accounts with "fifty-cent dollars," so the Advisers believed there was twice as much money available for trading as was actually the case. Lassila told Griswolds that procedure would work to their benefit (¶ 24).⁶ Each individual agreement with an Adviser (other than Stieren) indicates account funding at twice the amount actually deposited by Griswolds with Hutton.

Griswolds' investment in MCAP was a disaster. By May 4, 1984 they had sustained losses of $542,232 in trading, while incurring $298,827 in commissions to Hutton and $19,708 in fees to the outside Advisers (¶ 31). In total about 84% of some $1,025,000 Griswolds invested in Hutton's MCAP had evanesced.

Griswolds' Complaint asserts (with considerable redundancy) various forms of fraud and misrepresentation as predicates for their RICO, CEA and state-law claims:

1. churning of accounts by Stieren;

2. intentional failure by Hutton and Lassila to supervise and curtail Stieren's trading;

3. misrepresentation of the profit and risk potential of MCAP;

4. failure to coordinate the Advisers' trading to achieve the promised coherent plan;

5. concealment of reasons for trading losses;

6. misrepresentation of the amount of funds available to the outside Advisers with the intent to generate increased trading and higher commissions;

7. rendition of statements in a form (by individual Adviser's account) designed to disguise the total volume of trading and commissions;

8. misrepresentation of the contents and legal impact of the Release; and

9. breach of the common-law fiduciary duty to account for secret profits

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