Michelson v. MERRILL LYNCH PIERCE FENNER & SMITH

• Decision Date: 02 September 1987
• Docket Number: No. 83 Civ. 8898(MEL).,83 Civ. 8898(MEL).
• Citation: 669 F. Supp. 1244
• Parties: Douglas J. MICHELSON, Plaintiff, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Nelson Bunker Hunt, William Herbert Hunt, Douglas Herbert Hunt, Lamar Hunt, International Metals Investment Company, Ltd., John J. Conheeney, Conti-Commodity Services Inc., Conti-Capital Management, Inc., Conti-Capital Ltd., Norton Waltuch, Gilian Financial, ACLI International Commodity Services, Inc., Bache Halsey Stuart Shield, Inc., Shiek Mohammed Aboud Al Amoudi, Shiek Ali Bin Musalem, Mahmoud Fustok, Prince Faisal Bin Abdullah, Naji Robert Nahas, Banque Populaire Suisse, Advicorp Advisory and Financial Corporation S.A., Placid Oil Company, Commodity Exchange Inc., The Chicago Board of Trade, Irwin N. Smith, John Does Number Two to Ten, Defendants.
• Court: U.S. District Court — Southern District of New York

669 F. Supp. 1244

Douglas J. MICHELSON, Plaintiff, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Nelson Bunker Hunt, William Herbert Hunt, Douglas Herbert Hunt, Lamar Hunt, International Metals Investment Company, Ltd., John J. Conheeney, Conti-Commodity Services Inc., Conti-Capital Management, Inc., Conti-Capital Ltd., Norton Waltuch, Gilian Financial, ACLI International Commodity Services, Inc., Bache Halsey Stuart Shield, Inc., Shiek Mohammed Aboud Al Amoudi, Shiek Ali Bin Musalem, Mahmoud Fustok, Prince Faisal Bin Abdullah, Naji Robert Nahas, Banque Populaire Suisse, Advicorp Advisory and Financial Corporation S.A., Placid Oil Company, Commodity Exchange Inc., The Chicago Board of Trade, Irwin N. Smith, John Does Number Two to Ten, Defendants.

No. 83 Civ. 8898(MEL).

United States District Court, S.D. New York.

September 2, 1987.

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Douglas J. Michelson, Albuquerque, N.M., pro se.

Rogers & Wells, New York City, for defendants Merrill Lynch, Pierce, Fenner & Smith, Inc., ACLI Intern. Commodity Services Inc., and John J. Conheeney; William R. Glendon, Guy C. Quinlan, Susan A. Garcia, Peter L. Thoren, of counsel.

Shank, Irwin, Conant & Williamson, Dallas, Tex., for defendants Nelson Bunker Hunt, William Herbert Hunt, Douglas Herbert Hunt, Lamar Hunt and Placid Oil Co.; Roger Goldberg, Robert E. Wolin, of counsel.

Finley, Kumble, Wagner, Heine, Underberg, Manley & Casey, Washington, D.C., for defendant Intern. Metals Investment Co., Ltd.; Robert Wintrol, Robert Pokusa, of counsel.

Sullivan & Cromwell, New York City, for defendant Prudential-Bache Securities, Inc. (formerly known as Bache Halsey Stuart Shields, Inc.); Richard H. Klapper, of counsel.

Townley & Updike, New York City, James K. Leader, Gary M. Gertzog, of counsel, and Kirkland & Ellis, Chicago, Ill., John E. Angle, Garrett B. Johnson, T. Webster Brenner, of counsel, for defendant Board of Trade of the City of Chicago.

Baer Marks & Upham, New York City, for defendant Commodity Exchange, Inc.; Barry J. Mandel, Thomas E. Albright, Kristine M. Reddington, of counsel.

Kaye, Scholer, Fierman, Hays & Handler, New York City, for defendant Norton Waltuch; Steven J. Glassman, Menachem Z. Rosensaft, Michael A. O'Connor, of counsel.

LASKER, District Judge.

Douglas J. Michelson, who appears pro se, is suing a number of individual investors, commodities traders, investment companies, commodities brokers, and two commodity exchanges on various federal and state causes of action for losses he suffered in January 1980 when his metal futures account was liquidated by his broker, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). Michelson claims that his losses resulted from both the wrongful conduct of Merrill Lynch individually and a conspiracy among all the defendants in 1979-80 to manipulate the price of silver and silver futures in an effort to corner the silver market.

The procedural history of the case is recounted in detail in a previous opinion, see Michelson v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 619 F.Supp. 727 (S.D.N.Y.1985), and will not be repeated in detail. It suffices here to state that the case began as a lawsuit by Merrill Lynch against Michelson in the United States District Court for the District of New Mexico to recover a deficit balance in Michelson's trading account following its January 10, 1980 liquidation; that in his answer Michelson asserted sixteen counterclaims grounded in state and federal law; that in a series of decisions issued in 1982-83, the judge in the New Mexico proceeding dismissed with prejudice eleven of the counterclaims and granted Merrill Lynch summary judgment on its pleading; that Michelson filed the complaint at issue in this case, asserting thirty-six causes of action against twenty-four named defendants, on July 8, 1983, also in federal district court in New Mexico; that the complaint in the second proceeding was dismissed as to six of the defendants for lack of personal jurisdiction and the case transferred to the Southern District of New York in December 1983; and that disputes between the parties concerning the adequacy of service of process on some defendants delayed proceedings until the spring of 1985, when a number of defendants filed motions to dismiss the complaint. Michelson, 619 F.Supp. at 730-32.

The complaint as it stood at the time the motions to dismiss were filed alleged violations of various provisions of the federal antitrust, commodities, and racketeering laws as well as violations of New Mexico's antitrust, unfair trade practice, racketeering, and criminal statutes. In a detailed opinion issued on October 2, 1985 (hereafter "the 1985 decision"), this court dismissed the complaint in its entirety as against three defendants for insufficient service of process, dismissed with prejudice a number of claims as against some defendants, and dismissed a limited number of claims without prejudice to Michelson's amending his complaint so as to remedy various defects in pleading. See Michelson, 619 F.Supp. at 742 (summary of rulings).

On November 4, 1985, Michelson filed an amended complaint (116 pages in length, containing 405 paragraphs of factual allegations) which substantially expands upon the original complaint (61 pages, 136 paragraphs). The number and nature of the legal claims remains essentially the same, except for the addition of a count (XXXVII) charging all defendants with violations of the New York antitrust law, N.Y.Gen. Bus.Law § 340 (McKinney 1987).

The amended complaint appears to have created some confusion in two respects. First, it realleges causes of action which the 1985 decision dismissed with prejudice and without leave to replead (e.g., counts XXII-XXXII and XXXIV-XXXVI, alleged against Merrill Lynch and dismissed on res judicata grounds). Second, the amended complaint in its "Prayer" section (and, in one instance, in the description of a specific claim) seems to allege against all defendants claims which were pressed in the original complaint against Merrill Lynch alone (counts XIV, XV, XXVII, XXXII) or only against Merrill Lynch and the exchange defendants (count XXXIII). These discrepancies are explained in part by Michelson's decision to leave the original complaint's "Claims" section essentially unaltered in the interest of consistent numbering between the original and amended complaints and to utilize the "Prayer" section to specify the claims remaining against various defendants. See Plaintiff's Response to Motion to Dismiss at 15-16 (Feb. 20, 1986). In any event, the solution is to adhere to the determinations made in the 1985 decision, including the limited leave therein granted to amend the complaint in certain respects, and otherwise to bind plaintiff by his original complaint in the absence of a specific request for leave to amend pursuant to Rule 15 of the Federal Rules of Civil Procedure.

The motions to dismiss now pending are to a large extent reprises of the motions filed prior to the 1985 decision. Five different sets of motion papers have been submitted by the moving defendants,¹ and the arguments raised in each will be considered separately or together with those of other defendants as convenience dictates. This decision seeks to accomplish three tasks: first, to eliminate any confusion over which claims and defendants are dismissed from the case under the holdings of the 1985 decision; second, to determine whether the amendments to the complaint that were permitted by the 1985 decision are sufficient to permit Michelson to go forward with certain claims; third, to consider a number of arguments not reached in the 1985 decision given the posture of the case at that time. Because of the number of claims, moving defendants, and overlapping arguments involved, as well as the importance of the 1985 decision both as the law of the case and as background, familiarity with the earlier opinion is assumed.

I. MERRILL LYNCH

The 1985 decision held that counts XXII-XXXII and XXXIV-XXXVI were precluded in their entirety on res judicata grounds. Michelson, 619 F.Supp. at 732-34.² Counts III, VII, XII, XIII, and part of count IX were also dismissed with prejudice "to the extent that they relate to Merrill Lynch's decision to liquidate Michelson's account." Id. at 734-35.³ With respect to counts XIV-XV, XXI, and XXXIII, the 1985 decision stated:

While they may be based upon unlawful conduct other than Merrill Lynch's decisions to issue margin calls and to liquidate Michelson's account — issues conclusively adjudicated in the New Mexico proceedings, Michelson has not described with sufficient particularity the acts of Merrill Lynch that purport to be the bases for these claims. Accordingly, they will be dismissed with prejudice unless ... Michelson amends his complaint to re-plead these claims with required particularity.

Id. at 735 (footnotes omitted). These claims will now be examined.

A. Breach of Contract (Count XXI)

Count XXI alleges that Merrill Lynch breached its contract with Michelson as a result of the manner in which it dealt with his account from 1976 through January 10, 1980. Count XXI of the amended complaint is identical to its predecessor. The language of the claim describes Merrill Lynch's conduct during the 1976-80 period as "negligent, reckless and unbusinesslike and in contravention of the contracts and rules and regulations which formed the basis of Merrill Lynch's handling of the Michelson account" and "imprudent and/or unreasonable and/or taken in bad faith." The factual allegations underlying the claim, however, either relate exclusively to the events surrounding the issuance of margin calls and the liquidation of Michelson's account that have already been deemed to be res judicata or fail to provide support for a cause of action for breach of contract. See Amended Complaint ¶¶ 363-403. Nothing in the expanded paragraphs of factual allegations...