Montgomery v. RJ O'Brien & Assocs., LLC
| Decision Date | 11 July 2012 |
| Docket Number | Civil Action No. 6:12-141-TMC-KFM |
| Court | U.S. District Court — District of South Carolina |
| Parties | Baird Montgomery, Plaintiff, v. RJ O'Brien & Associates, LLC and Steven S. Andrews, Defendants. |
This matter is before the court on the defendant's motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(3) or, in the alternative, to transfer the case to the United States District Court for the Northern District of Illinois pursuant to 28 U.S.C. § 1404(a) (doc. 5). The plaintiff is proceeding pro se. Pursuant to the provisions of Title 28, United States Code, Section 636(b)(1)(A) and Local Civil Rule 73.02(B)(2)(e) DSC, all pretrial matters in cases involving pro se litigants are referred to a United States Magistrate Judge for consideration.
On February 9, 2012, the defendants filed a motion to dismiss or transfer case. On February 27, 2012, pursuant to Roseboro v. Garrison, 528 F.2d 309 (4th Cir. 1975), the plaintiff was advised of the motion to dismiss procedure and the possible consequences if he failed to adequately respond to the motion. After receiving an extension of time, the plaintiff filed his response on May 2, 2012. The defendants filed a reply on May 7, 2012, and the plaintiff filed a sur-reply on May 18, 2012.
The plaintiff was, at all times relevant to this action, a professional commodity trader who owned and operated Montgomery Commodities LLC, a Guaranteed IntroducingBroker ("GIB").1 Defendant R.J. O'Brien & Associates, LLC ("RJO") is a futures commission merchant (commodity broker), registered with the Commodity Futures Trading Commission ("CFTC").2 It is a member of the National Futures Association ("NFA").3 By virtue of its status as a clearing firm, RJO is permitted to execute trades on various contract markets (commodity exchanges) on behalf of its own clients and clients of other firms.4 The defendant RJO's principle place of business is Chicago, Illinois, and it maintains no branch offices in the State of South Carolina (Andrews dec. ¶¶ 2-4). Defendant Steven Andrews was the Vice President of Compliance of defendant RJO and an Associate Member of the NFA. He resides in Chicago and is presently employed at Merrill Lynch Pierce Fenner & Smith (Andrews decl. ¶ 1).
Between 1999 and 2007, Montgomery Commodities introduced client orders to RJO for execution on various exchanges. At all relevant times, the plaintiff was an Associate Member and Montgomery Commodities was a Member of the NFA (Andrews decl. ¶¶ 5-6). In December 2009, when the plaintiff's company no longer introducedbusiness to the defendant, NFA issued a complaint alleging that, while at RJO, the plaintiff had been allocating orders in violation of NFA Rules. Specifically, NFA alleged that the plaintiff placed multiple orders with RJO, waited to see if the trades would be profitable, and then - post-execution - allocated the profitable trades to his own personal accounts (Andrews decl., Ex. A ¶ 36). By entering trades in this manner, the plaintiff was able to profit personally while the clients for whom he traded suffered unwarranted losses (Andrews decl. ¶ 8, Ex. A ¶ 36). The NFA also alleged that the plaintiff had engaged in the same, or similar, illegal practices between 2007 and 2009 while introducing client orders to Cadent Financial Services LLC ("Cadent"), a futures commission merchant and a clearing firm with its principle place of business in Chicago, Illinois . The plaintiff ultimately settled the NFA complaint, accepting sanctions for the conduct alleged (Andrews decl. ¶¶ 10-11, Ex. B, C).
Upon further investigation, both RJO and Cadent determined that it was appropriate to make restitution to certain affected clients and former clients introduced by the plaintiff (Andrews decl. ¶¶ 12-13, Ex. D). In order to provide the appropriate refunds, Mr. Andrews, on behalf of RJO, examined the accounts introduced by Montgomery Commodities and those accounts in which the plaintiff had an interest. Mr. Andrews reached the same conclusion reached by the NFA and Cadent - the plaintiff had systematically defrauded their clients (Andrews decl. ¶¶ 14-15).
In his investigation, Mr. Andrews discovered that RJO Account No. xxx-x9157, a personal trading account opened by the plaintiff in January 1999, had benefitted from the plaintiff's wrongdoing. That account was subject to a Customer Agreement, signed by the plaintiff, that provides, in pertinent part:
All transactions by RJO on Customer's behalf shall be subject to the constitution, regulations, customs and interpretations of each exchange or market . . . on which the trades are executed, and to all applicable governmental regulations.
It also provides:
. . . Customer agrees to hold RJO, its principles, officers, directors, employees, its affiliates, and agents harmless with respect to any and all losses sustained by the latter resulting from the Customer's account(s), or any related activity, and to indemnify RJO for all costs incurred, including reasonable attorney's fees.
Finally, the Account Agreement provides:
Customer agrees that all disputes, claims, actions or proceedings arising directly, indirectly, or otherwise in connection with, out of, related to or from this Agreement shall be litigated or arbitrated only in a court or arbitration forum located in Chicago, Illinois, unless otherwise directed by RJO. Customer consents and submits to the jurisdiction of any state or federal court or arbitration forum located within the City of Chicago.
(Andrews decl. ¶¶ 16-17, Ex. E).
In addition, to induce the defendant RJO to clear its trades, Montgomery Commodities entered into a Clearing & Guarantee Agreement ("Clearing Agreement") which was personally guaranteed by the plaintiff. Among other things, that Clearing Agreement provides: "Broker [Montgomery Commodities] further warrants that it is familiar with the Commodity Exchange Act, the rules and regulations of the CFTC, the NFA and of the exchanges on which customer trades are executed. It further warrants that it will conduct its business in accordance therewith. "That Clearing Agreement requires Montgomery Commodities and, by his personal guarantee, the plaintiff to indemnify RJO and its "affiliates, officers, directors, agents, and servants from all claims, losses, damages, and costs (including attorneys' fees) incurred by [RJO] and resulting from any breach of [the Clearing Agreement] or from any culpable conduct (alleged or actual) toward any third party . . ." The Clearing Agreement additionally provides:
This Agreement shall be governed by the laws of the State of Illinois, without regard to principles of conflicts of laws. Theparties agree to submit any dispute arising out of this Agreement to the jurisdiction of, and consent to the jurisdiction venue (sic) in, state or federal court in Chicago, Illinois . . . Broker waives any objection to venue that Broker may have pursuant to the doctrine of forum non conveniens.
(Andrews decl. ¶¶ 18-19, Ex. F).
Another account used in the fraudulent allocation of trades by the plaintiff was RJO Account No. xxx-x0000, a corporate account in the name eProfits.com, Inc. That account was both traded by and personally guaranteed by the plaintiff. The Account Agreement, executed by the plaintiff in 2003, requires that: "All transactions handled by RJO on Customer's behalf shall be subject to the constitution, regulations, customers and interpretations of each exchange or market . . . on which the trades are executed, and to all applicable governmental regulations." The Agreement also provides:
Customer agrees that all disputes, claims, actions or proceedings arising directly, indirectly, or otherwise in connection with, out of, related to or from this Agreement shall be litigated or arbitrated only in a court or arbitration forum located in Chicago, Illinois, unless otherwise agreed by RJO. Customer consents and submits to the jurisdiction of any state or federal court or arbitration forum located within the Northern District of Illinois.
(Andrews decl. ¶¶ 20-21, Ex. G).
In 2006, the plaintiff opened another account that was involved in his fraudulent scheme, RJO Account No. xxx-x0000, a partnership account in the name of eProfits Diversified Hard Asset Fund, LP, of which he was both the General Partner and personal guarantor. Again, the Account Agreement the plaintiff executed required that his trading be in compliance with exchange and "governmental regulations" and contains the following provision:
Customer agrees that all disputes, claims, actions or proceedings arising directly, indirectly, or otherwise inconnection with, out of, related to or from this agreement shall be litigated or arbitrated only in a court or arbitration forum located in Chicago, Illinois, unless otherwise agreed by RJO. Customer consents and submits to the jurisdiction of any state or federal court or arbitration forum located within the Northern District of Illinois.
(Andrews decl. ¶¶ 22-23, Ex. H).
Mr. Andrews states in his declaration that as a direct and proximate result of the fraudulent allocation scheme undertaken by the plaintiff using these three accounts (and others) and executing the trades through defendant RJO pursuant to the Clearing Agreement between the parties, defendant RJO was obligated to, and did, refund approximately $183,000 to 30 clients and former clients introduced by Montgomery Commodities (Andrews decl. ¶ 24). The letter attached to the complaint in this lawsuit was sent by the defendants to these clients to explain the refunds (Andrews decl. ¶ 25; see comp. ¶ 4). In his complaint, the plaintiff alleges that the letters sent to these clients "asserted that . . . [he] engaged in improper and illegal conduct and accused him and the firm of impropriety in performing his trade or profession." He further alleges that the letters "impeached [his] honesty, integrity, virtue and...
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