Michelson v. Merrill Lynch Pierce, Fenner & Smith, Inc.

• Decision Date: 02 October 1985
• Docket Number: No. 83 Civ. 8898 (MEL).,83 Civ. 8898 (MEL).
• Citation: 619 F. Supp. 727
• Court: U.S. District Court — Southern District of New York
• 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 Co. Ltd., John J. Conheeny, 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 Mussalem, 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, Defendants.

619 F. Supp. 727

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 Co. Ltd., John J. Conheeny, 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 Mussalem, 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, Defendants.

No. 83 Civ. 8898 (MEL).

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

October 2, 1985.

COPYRIGHT MATERIAL OMITTED

Douglas J. Michelson, pro se.

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

Paul, Weiss, Rifkind, Wharton & Garrison, New York City, for ContiCommodity Services Inc., ContiCapital Management, Inc., ContiCapital, Ltd., Richard A. Rosen, New York City, of counsel.

Kaye, Scholer, Fierman, Hays & Handler, New York City, for defendant Norton Waltuch; Steven J. Glassman, New York City, of counsel.

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

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

Curtis, Mallet-Prevost, Colt & Mosle, New York City, for defendant Mahmoud Fustok; Herbert Stoller, New York City, of counsel.

Gilbert, Segall & Young, New York City, and Arnold & Porter, Washington, D.C., for defendant Banque Populaire Suisse.

Shank, Irwin, Conant & Williamson, Dallas, Tex., John R. Bartels, Jr., White Plains, N.Y., for defendants Nelson Bunker Hunt, William Herbert Hunt, Douglas Herbert Hunt, Lamar Hunt and Placid Oil Co.; Robert Everett Wolin, Dallas, Tex., of counsel.

Morrison, Cohen & Singer, P.C., and Finley, Kumble, Wagner, Heine & Underberg, New York City, for defendant Intern. Metals Inv. Co., Ltd.

Sullivan & Cromwell, New York City, for Prudential-Bache Sec., Inc. (formerly known as Bache Halsey Stuart Shields Inc.).

LASKER, District Judge.

Douglas J. Michelson is a resident of New Mexico and a rare metals trader who suffered heavy financial losses when the price of silver increased dramatically in the latter half of 1979 and in early 1980. Michelson, who appears pro se, has filed a sixty-one page complaint asserting thirty-six causes of action against twenty-four named defendants¹ contending that they participated in a conspiracy in 1979-80 to raise the price of silver in an effort to corner the silver market.

Currently pending are motions: (1) by Merrill Lynch to dismiss pursuant to Fed. R.Civ.P. 12(b)(6) twenty-three claims and 22 paragraphs of factual allegations in the complaint based upon the doctrines of res judicata and/or collateral estoppel; (2) by the Exchanges to dismiss under Rule 12(b)(6) all claims against them for failure to state a claim; (3) by nine non-exchange defendants ("Certain Defendants")² to dismiss pursuant to Rule 12(b)(6) eight counts of the complaint for failure to state a claim; (4) by John J. Conheeny to dismiss the complaint under Rules 12(c), 12(b)(2), 12(b)(5), or 12(b)(6) based upon insufficient service of process; and (5) by Norton Waltuch and ContiCommodity Services, Inc. under Rule 12(b)(5) to dismiss the complaint on the ground of insufficient service of process. For the reasons set forth below, Merrill Lynch's motion is granted in part and reserved in part; the motion of the Exchanges will be granted unless within thirty days Michelson amends his complaint; the non-exchange defendants' motion is granted in part, denied in part, and reserved in part and part will be granted unless Michelson amends his complaint within thirty days; and the motions of Conheeny, ContiCommodity Services, Inc. and Waltuch are granted.

I.

This action traces its origins back to 1980 when Merrill Lynch filed suit against Michelson in the United States District Court for the District of New Mexico to recover a debt of approximately $118,000. From 1974 until January 9, 1980, Michelson traded silver, gold and copper futures on margin through an account at Merrill Lynch. Beginning in the latter half of 1979 and continuing through the first quarter of 1980, the price of silver rose to unprecedented levels, allegedly as a result of a conspiracy among the named defendants to corner the world's supply of silver. In January of 1980, Michelson held a number of short positions in the market and, when he failed timely to meet a margin call, Merrill Lynch liquidated his account on January 10, 1980 through purchases of gold and silver contracts. After the liquidation, Michelson continued to owe approximately $118,000 and Merrill Lynch initiated its suit to recover that amount.

Michelson's answer asserted sixteen counterclaims against Merrill Lynch. Merrill Lynch subsequently moved for summary judgment on its pleading and to dismiss the counterclaims and, in an August 1982 opinion, Judge Bratton dismissed eleven of the counterclaims with prejudice. The dismissed counterclaims alleged that Merrill Lynch was liable to Michelson as a result of its negligence (counts II, IV, VI & IX), breaches of fiduciary duty (counts I & V), failure to issue proper and accurate margin calls (counts III, VII & VIII), and its failure to give effect to a three-party security agreement between Michelson, Merrill Lynch, and the First National Bank of Albuquerque (counts XIII, XIV & XV), all of which allegedly violated Section 4b of the Commodity Exchange Act. 7 U.S.C. § 6b (1982). The remaining portions of Merrill Lynch's motion were denied due to the presence of material questions of fact. See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Michelson, No. 80-0095 HB (D.N.M. Aug. 12, 1982) (hereinafter "Merrill Lynch v. Michelson"), reprinted in Merrill Lynch's Memorandum of Law in Support of Its Motion to Dismiss, at Exhibit C.³

Merrill Lynch moved for reconsideration of this decision and in an opinion dated August 3, 1983 was awarded summary judgment on its pleading. The opinion was confined to the issue of whether Merrill Lynch was empowered to liquidate Michelson's account notwithstanding the fact that a statement by the Merrill Lynch official in charge of the account to Michelson created the inference that a partial payment of the margin call would satisfy Merrill Lynch. Judge Bratton found that the agreement between Michelson and Merrill Lynch relating to the account "gave Merrill Lynch the right to liquidate Michelson's account whenever in its discretion it considered that action necessary for its protection," and that "Merrill Lynch considered liquidation ... to be necessary for its protection." Merrill Lynch v. Michelson, No. 80-095 HB, slip op. at 3 (D.N.M. Aug. 3, 1983), reprinted in Merrill Lynch's Memorandum of Law, at Exhibit D.

In an accompanying opinion issued at the same time, Judge Bratton also dismissed without prejudice Michelson's five remaining counterclaims on the ground that Michelson's pro se pre-trial order submitted sometime in the summer of 1983 did not "inform the court or Merrill Lynch of the factual basis of Michelson's claims or the legal theories on which he relies." Merrill Lynch v. Michelson, No. 80-095 HB, slip op. at 3 (D.N.M. Aug. 3, 1983), reprinted in Merrill Lynch's Memorandum of Law, at Exhibit E. Michelson's counsel had withdrawn from the case in June of 1981 and Michelson has appeared pro se since that time.

Michelson filed the complaint at issue in this case in July of 1983 in the District of New Mexico. The complaint embodies the fifteen counterclaims pleaded in the earlier action and added as defendants various foreign and domestic individuals and institutions who allegedly participated, along with Merrill Lynch, in the conspiracy to manipulate the silver market in 1979-80. In addition, Michelson adopted and expanded upon the thirty-three paragraphs of factual allegations supporting his counterclaims to allege, in 136 paragraphs, inter alia, that the defendants conspired to raise the price of silver so as to force silver traders holding short positions out of the market (para. 70); that the Exchanges acted in bad faith by failing to take "emergency actions" to preserve orderly market conditions (paras. 72-79); and that Merrill Lynch acted in furtherance of the above conspiracy by executing many "wash sales" so as to create volume in the silver market and establish the appearance of a legitimate market (paras. 130-31). Michelson now alleges that one or more defendants have violated the federal Racketeer Influenced and Corrupt Organizations ("RICO") Act, 18 U.S.C. §§ 1961-68 (1982), various provisions of the Commodity Exchange Act, extortion, mail and wire fraud statutes, 18 U.S.C. §§ 1951, 1341 & 1343 (1982), and New Mexico's antitrust, RICO, unfair trade practice and criminal laws.

After the complaint was dismissed as to a number of defendants by Judge Bratton for lack of personal jurisdiction, Michelson's case was transferred sua sponte to this District in December of 1983. Proceedings were delayed for more than one year owing to a dispute between the parties regarding the sufficiency of Michelson's service of process upon a number of defendants. At a conference held on January 30, 1985 we granted Michelson until March 15, 1985 to re-serve the defendants and the defendants were subsequently granted until April 15, 1985 to move to dismiss or to answer the complaint. The...