Indemnified Capital Investments, SA. v. R.J. O'Brien & Associates, Inc.

• Decision Date: 30 December 1993
• Docket Number: No. 93-1223,93-1223
• Parties: INDEMNIFIED CAPITAL INVESTMENTS, SA., Plaintiff-Appellant, v. R.J. O'BRIEN & ASSOCIATES, INCORPORATED, John W. O'Brien, Robert J. O'Brien, Jr., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1406

12 F.3d 1406

62 USLW 2452

INDEMNIFIED CAPITAL INVESTMENTS, SA., Plaintiff-Appellant, v. R.J. O'BRIEN & ASSOCIATES, INCORPORATED, John W. O'Brien, Robert J. O'Brien, Jr., et al., Defendants-Appellees.

No. 93-1223.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 14, 1993.

Decided Dec. 30, 1993.

John E. Dolkart (argued), Chicago, IL, for plaintiff-appellant.

Lloyd A. Kadish (argued), Kadish & Associates, Arthur W. Hahn, and Ronald S. Betman (argued), Katten, Muchin & Zavis, Chicago, IL, for defendants-appellees.

Before CUMMINGS and COFFEY, Circuit Judges, and ZAGEL, District Judge. ^*

COFFEY, Circuit Judge.

The plaintiff, Indemnified Capital Investments ("ICI"), brought this action against the defendants alleging fraud, breach of fiduciary duty, and violations of the Commodity Exchange Act ("CEA"), 7 U.S.C.A. Secs. 1-25 (West Supp.1993). The district court dismissed the complaint on the ground that the plaintiff lacked standing to bring the suit. The plaintiff appeals the dismissal as well as the trial court's failure to permit the plaintiff to amend the complaint. We affirm.

I. BACKGROUND

The plaintiff, ICI, is a foreign corporation organized under the laws of the Turks and Caicos ¹ maintaining its principal place of business in Nassau, Bahamas. Defendant R.J. O'Brien Associates, Inc. ("RJOB"), is an Illinois corporation with its principal place of business in Chicago, Illinois. Defendant John W. O'Brien is RJOB's Chief Executive Officer ("CEO") and his brother Robert J. O'Brien, Jr. is a principal of RJOB. Both John and Robert are Illinois citizens and associate members of the National Futures Association ("NFA"). ² Defendant VMB Agrimarketing Services, Inc. ("VMB"), is an Iowa corporation with its principal place of business in Missouri. Defendant Vernon Bounds is President and CEO of VMB and a resident of Missouri.

In October of 1987, ICI, which maintains customer accounts for investment purposes, opened a commodity futures trading account with RJOB by executing a single customer agreement. Under that one agreement, RJOB was to invest the funds from some forty-three separate accounts. Thirty-nine of these accounts were owned by individual unnamed customers of ICI. Four of the forty-three accounts were "house accounts" which belonged to ICI and not to its respective customers. Over the course of ten months, RJOB's trading proved unsuccessful, prompting RJOB to recommend that ICI allow VMB to trade the customer accounts (VMB never traded for ICI's house accounts). Between August 1988 and April 1989, VMB increased the total value of the ICI customer accounts from roughly $200,000 to $600,000.

On April 29, 1989, Michael F. Holtzman, attorney for ICI, directed RJOB to "take profits," i.e., sell all commodities from these accounts to protect gains from future downturns in the market. John O'Brien assured Holtzman that the customers' profits were secure when in fact they were not. In May 1989, the market took a serious downturn resulting in the loss of all profits in the ICI customer accounts. On May 26, 1989, VMB through its CEO and president, Vernon Bounds, faxed a market letter advising its clients that it had withdrawn from the market as of May 25, 1989. However, VMB still maintained some market positions which incurred losses in excess of $90,000 in the five days following (ending May 30, 1989).

After May 1989, all of ICI's customer accounts were liquidated and ICI and RJOB entered into negotiations to assess the losses and arrange for settlement of debit accounts. On May 19, 1990, RJOB "netted" ³ the house accounts and the customer accounts crediting the ICI house account with $43,973 and debiting a total of $43,973 from the customer accounts. On May 28, 1992, ICI filed the instant lawsuit alleging fraud, breach of fiduciary duties, and violation of the Commodities Exchange Act Sec. 4 (fraud). The trial court dismissed the suit for lack of standing.

II. ISSUES

ICI argues that the district court erroneously dismissed the complaint because ICI lacked standing. ICI also argues that the district court abused its discretion in refusing to allow ICI to amend its complaint by clarifying facts.

III. DISCUSSION

A. ICI's Standing as to "Customer" Accounts

VMB and Vernon Bounds (collectively the VMB defendants) argue that they only had authorization to trade in the customer accounts and not in the house accounts. They maintain that ICI lacks standing to challenge any losses incurred in those customer accounts because the customers alone suffered loss and thus absent a specific authorization assigning the customers' claims to ICI, the customers alone have standing to pursue the litigation.

"In essence the question of standing is whether the litigant is entitled to have the court decide the merits of the dispute or of the particular issues. This inquiry involves both constitutional limitations on federal court jurisdiction and prudential limitations on its exercise." Warth v. Seldin, 422 U.S. 490, 498, 95 S.Ct. 2197, 2205, 45 L.Ed.2d 343 (1975). In 1962, the Supreme Court summarized the constitutional element of the standing question as, "have the appellants alleged such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the court so largely depends ...?" Baker v. Carr, 369 U.S. 186, 204, 82 S.Ct. 691, 703, 7 L.Ed.2d 663 (1962). Just last Term, the Court stated "the core component of standing is an essential and unchanging part of the case-or-controversy requirement of Article III." Lujan v. Defenders of Wildlife, --- U.S. ----, ----, 112 S.Ct. 2130, 2136, 119 L.Ed.2d 351 (1992). The constitutional minimum for standing includes three elements:

"First, the plaintiff must have suffered 'an injury in fact'--an invasion of a legally-protected interest which is (a) concrete and particularized, ... and (b) 'actual or imminent, not conjectural or hypothetical,'.... Second, there must be a causal connection between the injury and the conduct complained of--the injury has to be 'fairly ... trace[able] to the challenged action of the defendant, and not ... th[e] result [of] the independent action of some third party not before the court.'... Third, it must be 'likely,' as opposed to merely 'speculative,' that the injury will be 'redressed by a favorable decision.' "

Id. (citations omitted). "The party invoking federal jurisdiction bears the burden of establishing these elements," id., and because standing is a question of federal law, we review de novo a district court's standing determination. Frank Rosenberg, Inc. v. Tazewell County, 882 F.2d 1165, 1167 (7th Cir.1989), cert. denied, 493 U.S. 1023, 110 S.Ct. 726, 107 L.Ed.2d 745 (1990).

The defendants, seeking dismissal, argue that a plaintiff "has standing to seek redress for injuries done to him, but may not seek redress for injuries done to others." Moose Lodge No. 107 v. Irvis, 407 U.S. 163, 166, 92 S.Ct. 1965, 1968, 32 L.Ed.2d 627 (1972). ICI counters that under Commodities Exchange Act Sec. 25(a)(2) it has standing because the Act authorizes private causes of action. The Act states:

"Except as provided in subsection (b) of this section, the rights of action authorized by this subsection ... shall be the exclusive remedies under this chapter available to any person who sustains loss as a result of any alleged violation of this chapter."

7 U.S.C.A. Sec. 25(a)(2). The Act creates a private right of action for "any person who sustains loss as a result of any alleged violation of this chapter"; however, the Act does not confer standing. Regarding ICI's standing to bring suit against VMB and Vernon Bounds, we are in agreement with the district court that ICI has not suffered an injury in fact. For the purposes on Article III standing, the losses incurred by the ICI customer accounts accrued only to ICI's customers and are too attenuated to create standing for ICI. Based on the record before us, VMB only had authorization to trade in the customer accounts and thus any losses are only attributable to ICI's customers. Accordingly, ICI has failed to satisfy the injury in fact element of standing. See Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 117-19 (2d Cir.1991); E.F. Hutton & Co. v. Hadley, 901 F.2d 979, 985 (11th Cir.1990).

ICI claims that it has satisfied the injury in fact requirement of Article III standing under North Shore Gas Co. v. EPA, 930 F.2d 1239, 1242 (7th Cir.1991). In North Shore Gas, we held that "a probabilistic benefit from winning a suit is enough 'injury in fact' to confer standing in the undemanding Article III sense." Id. The probabilistic benefit for the plaintiff in North Shore Gas was that if it prevailed in its suit to enjoin the EPA from enforcing an order against another company, the cost of the plaintiff complying with cleanup of its superfund site would be reduced even though at the time of the suit the plaintiff's liability for the cleanup had not been established. In Bankers Trust Company v. Old Republic Insurance Company, 959 F.2d 677 (7th Cir.1992), we clarified the probabilistic injury requirement stating "this doesn't mean that any probability, however slight, of injury is enough to permit a suit to be maintained in federal court. We are dealing with matters of degree." Id. at 681. We note that in the instant case, ICI has not alleged in its complaint that it owned the funds in its customer accounts, that it was injured by the losses in those accounts, that it might suffer some future loss of business, or that its customers assigned their claims to ICI. Although ICI did mention that its customers may bring a suit against ICI, that assertion falls short of demonstrating a probabilistic injury and is too tenuous to create federal standing.

Finally, ICI argues that it satisfies the requirements of third party standing. We disagree, for third party standing arises only in rare occasions and the...